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Chris Davies: Are insistent clients a dilemma or an opportunity?

My travels over the last month have taken me all over the country and there seems to be only one topic raising its head on a consistent basis: insistent clients determined to transfer from defined benefit to defined contribution schemes.

We are only two months into the new pension freedom regime yet there has already been plenty of noise around this issue, with product providers and trade bodies sounding strong warnings to advisers engaging with such clients.

As a consultant and researcher, my instinct is to let the market run and keep the “antenna” high in making sense of the general direction of travel.

What is clear in these early days is that there has not been a deluge of clients wanting transfers. There has certainly been a raised level of interest from clients wanting to understand the reforms but, as a whole, adviser firms are currently reporting just a handful of specific actions thus far.

Insistent, by its definition, is an emotive term and as such should not be classed within the execution only services label. The fact the FCA has not (yet) included insistent clients as a regulatory definition means semantics does not come into it.

Clients should expect their best interests to be protected at all times. This means if a firm has a watertight advice proposition that ensures any clients holding such an emotive agenda are managed accordingly, it is simply a case of managing emotions and behaviours. This is as much a soft skill as it is having a robust proposition.

Execution only is not advice and has separate rules. A pension transfer, however, requires advice. This is part of the Government’s mandate for those wanting to access their pension funds post-freedoms and it means those classed as “insistent” must run through a process. It could even start with guidance. Indeed, the Sunday Times’ mystery shop found that Pension Wise is rightly recommending advice first for those demanding a transfer.

Clients who then take a course of action contrary to the advice provided will, I believe, be few and far between once they have run through a high quality planning process, particularly one involving cashflow modelling.

Those advisers who refuse to deal with these clients at outset need to look hard at their motivations to do so. If it is only driven by PI and FOS concerns then I would argue they are not as confident with their advice or planning process as they think they are. 

We see the following strategies as a defence against any emotionally charged client:

1. Specialised pension planning proposition. A focused proposition needs to be developed that incorporates the new pension opportunities and challenges. This should include:

  • Cashflow modelling to assess all planning scenarios, incorporating a holistic view on all of a client’s assets
  • Coaching techniques such as conflict resolution or solutions based questioning
  • AF3/G60 qualified advisers and planners
  • A separate fee charged according to the work and risks involved.

2. Focus on core skills: Advisers are not and never shall be order takers. The very nature of their skill sets means they are professionals in the art of developing deep and meaningful client relationships. This tied into a robust and compliant proposition that meets Cobs 9.3.3G means a client’s resources, objectives and priorities are considered in depth before any recommendation can be made.

3. Clear audit trail: This should be developed around the new challenges and opportunities. A clear document structure should include:

  • Pension awareness checklist covering the proposition and service clients need to run through to attain a holistic view on their options
  • A carefully worded engagement document tailored for clients segmented as insistent, which stipulates in clear and plain terms the firm’s position on the new rules and pension transfers
  • Suitability report to include clear reference to the client’s position. This is to include evidence the client has agreed or disagreed to take advice in the form of a written letter in their own words, as well as acknowledge they may not be entitled to FOS protection
  • A confirmation letter that confirms the advantages of remaining in the scheme and disadvantages of withdrawal
  • A referral process or termination agreement for those clients who reject any recommendations provided.

4. Audio recorded meetings that can be provided as evidence of the verbal engagement.

Chris Davies is managing director at Engage Insight


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