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Advisers must rescue clients adrift in shark-infested waters

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


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There are 3 comments at the moment, we would love to hear your opinion too.

  1. I kept my locum in place after we ceased to be a one adviser firm. It’s good practice and means we share ideas and experiences. It also helps with regard having an investment committee and consistency in what you advise all clients it also means we practice justifying our research and fund selection to one another so that should the FCA ever question our processes we are used to explaining them to someone.

  2. The problems (IMHO) Carl go much deeper …

    Take your opening gambit “The closure of firms gives us an opportunity to win new clients”

    From a personal view point and current situation, My first duty is “spans of control” I haven’t taken on new clients for the past 10 years or so (only a handful of recommendations from existing clients) the simple reason is, with regulation as it stands at the moment, I’m left with very little time, any more strain on this and I would be in a position of doing a job “half arsed” which is very dangerous.
    People pay good money and a high price for my services, and therefor its only fitting they are not left wanting.

    Employ I here you cry…. Get better systems, as you slap your head…

    Employ-: aside from adding more cost, its not a place I want to revisit on top of the regulation we have now, do I really want to put employment law on top with its own raft of problems.

    Systems-: They are as upto date as they can be …they have to be !

    So yes its great clients knocking your door down for advice ….or is it ?

    For those advisers and or firms who have the scope and control to accommodate more clients, great but vet them well.

    There is no wiggle room left from a regulatory stand…so bleating you have no time and doing half a job ..will only end one way.

    Any new client contacting me, are told go ask the FCA why there not many advisers to choose from, ask them why the last bloke was too expensive, ask them why he just disappeared with no trace, and ask them why starting a pension or an ISA is so involved and problematic.

    Carl, there is a rubber ring and a whistle for those bobbing about in these shark infested waters …..MAS (or whatever it calls itself these days)

    My boat is warm and dry and no spare seats.

    • Julian Stevens 3rd April 2019 at 5:33 pm

      Good post. If asked, I think the FCA might well say that the reason for there being a shortage of advisers is that most of those now gone were sharks/spivs/bums/cowboys/rip-off merchants or whatever, who either couldn’t or wouldn’t meet the high standards laid down by them and that it’ll take time for adequate numbers of replacements of suitable quality to replace them.

      This, of course, will conveniently gloss over the large numbers of good advisers who are so sick to death of having to battle daily with endlessly ratcheting up regulation according to the lowest common denominator (on the assumption that, were we given sufficient slack, we’d all behave like cowboys), created by overpaid committees of armchair theorists with no understanding of what consumers actually want (less paper for a start), that they’re looking forward to the day they can afford to get the hell out of it all and there are more of them than there are successors.

      So the shortage of advisers isn’t going to end any time soon. The name of the game going forward is large consolidators buying up small firms’ client books and restricted nationals. The days of that nice Mr Smith on the high street, who maybe isn’t the world’s greatest technician but who’s honest, approachable, dependable and not driven by the endless pursuit of maximum profit are drawing to a close.

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