There are ongoing challenges for our industry in the post-defined benefit transfer world. I have recently been reminded of this with the news of the withdrawal of permissions from one local firm and the financial collapse of another. It is a tough world out there and, with continuing FCA scrutiny across many areas, it is going to get tougher.
The closure of firms gives us an opportunity to win new clients, of course, so those of us still forging ahead will no doubt reap the benefits of others’ failure. However, the disenfranchised DB transfer client turning up on our doorstep may set us new dilemmas.
If FCA reports are to be believed, there’s a strong possibility the advice that led to their decision to transfer may have been flawed either in terms of its suitability or in the investment strategy recommended post-transfer.
If this is the case, what do we do? Keep a lid on it to protect the reputation of the previous adviser and the industry – and help limit the ongoing cost of the Financial Services Compensation Scheme? Of course not. We must ensure the client’s best interests are our highest priority and so, if appropriate, encourage them to complain in order to get redress.
Sadly, if the previous adviser has left the market, the end result is that we find ourselves footing the bill via the FSCS levy once again.
It’s a vicious circle of a contracting profession, where the survivors are paying for the mistakes and bad practice of those who have fallen.
The dilemma continues when you consider that, to provide a full advice service, you will need to charge a fee. The poor client has to fork out again to get back on track.
Clearly, we have a moral responsibility to put things right where others in our profession have let clients down. Clients cast adrift need a lifeboat service that will pick them up and set them on the right course again.
We cannot afford – both in terms of our reputation and of the cost of the FSCS – to allow the castaways to be marooned in shark-infested waters, exposed to the dangers of further unsuitable advice. Their sudden vulnerability makes them easy pickings for a feeding frenzy by unscrupulous advisers. We – and the regulator – must protect them.
So how can we provide this lifeboat service? We should have a structured process that kicks into effect when a firm is closed to ensure clients are steered in the right direction.
When British Steel’s pension scheme fell into difficulties, there were firms who stepped in, providing advice on immediate concerns, but this only happened after a call for volunteers was put out to the profession.
One-man-bands are obliged to appoint a suitably qualified locum in case they cannot continue to provide a service. I think every firm should be required to appoint a locum so clients can get immediate advice if their original adviser is no longer available.
This would give the client a bit of breathing space in which they could decide if they wanted to engage the lifeboat adviser permanently or if they wanted to look around.
Our profession will continue to change and contract over the next few years, and commercial pressures coupled with FCA scrutiny will cause more firms to cease trading. We must ensure their departure does not leave clients vulnerable.
Carl Lamb is managing director of Almary Green