Richard Leeson: Are we returning to self-regulation on insistent clients?

Richard Leeson

What exactly is the FCA doing? I know what it should be doing. Its website makes it quite clear its objectives are “to make sure that financial markets work well so that consumers get a fair deal. This means ensuring that:

  • The financial industry is run with integrity
  • Firms provide consumers with appropriate products and services
  • Consumers can trust that firms have their best interests at heart.”

The last article I penned for Money Marketing was on the inconsistency between the disclosure of adviser charging rules between vertically integrated firms and the rest of the market. In brief, a vertically integrated firm is not under the same obligation as an adviser firm (which is not owned by a provider) to tell its investors how much the advice costs. To date, not a dicky bird from the FCA in response, despite extensive press coverage of concerns raised by members of the public on the issue.

Meanwhile, just after that article was published, we read FCA head of pension policy Maggie Craig had said in a speech on 24 November 2015: “I know there are differences of opinion about whether you should transact the business for an insistent client. Some advisers feel you should help them make the best of a bad situation while others disagree. Our rules don’t say you should do one or the other.”

She was, of course, referring to clients who wish to proceed with transfers of their pension benefits despite being advised not to do so. But if it is not the job of the FCA to intervene to help people avoid poor financial decisions then whose job is it? Are we back to self-regulation? Unlike Craig, I am speechless.

There is an element of bias in my view, given I wrote in this publication last April just how disappointed I was that the regulator had failed to give a clear steer to advisers. Let me recap on my concerns.

A client has been told by a professional, qualified adviser that the transfer of their pension benefits is not in their interests. That client can then insist that the transfer goes ahead. However, if the adviser acts for the client in that transfer they will be in danger of a Financial Ombudsman Service complaint or negligence suit if, later on, the client decides they are worse off and wishes to pursue the adviser.

Let me return to the FCA’s own description of its purpose: “…to make sure that financial markets work well so that consumers get a fair deal. This means ensuring that:

  • The financial industry is run with integrity
  • Firms provide consumers with appropriate products and services
  • Consumers can trust that firms have their best interests at heart.”

How can the industry be acting with integrity when providers accept transfers that clients have been told are against their financial interests? How can firms be providing consumers with appropriate products if the advice given is that the product is inappropriate? How will consumers be able to trust any of us to have their best interests at heart?

Our concerns for these clients should be heightened by the vulnerability of people at this stage of their lives. Craig summed it up in these words in reference to secondary annuities:

“Many of the consumers in this base may well be more vulnerable than your average consumer. They are likely to be older and they are likely to be at a stage in their life where their cognitive faculties aren’t what they used to be.”

Admittedly, the client base is older for secondary annuities but many pension transferring clients will be vulnerable.

Personal Finance Society chief executive Keith Richards has been a lone voice in raising this issue with the FCA on behalf of advisers. He has sought clarity on how they should proceed but without success. It is time for others to join the cause: Apfa, Libertatem, the networks and nationals, as well as individual firms.

If the FCA will not take action then the industry must. If we do not tackle this and other issues, we face a future of continued suspicion from the public and pointing the finger of blame in years to come will not be the answer.

Richard Leeson is chief executive of Adviser Advocate