A common theme behind compliance disasters is the high prevalence of “fantasist” behaviour.
Some advisers believe they can recommend things of which they have very little knowledge and which an outsider could identify as pure guesswork.
The response: “The clients want something out of the mainstream” does not answer the question. Diners in an exotic restaurant still want a nutritious, safe meal.
IFAs typically have a higher risk threshold than most of their clients. The problem comes when they assume their customers must share their tolerance of bad outcomes.
Most people do not want their personal finances to be exciting. Successful businessmen often prefer to take their biggest risks in their businesses which they understand rather than exotic funds and structures.
The fantasist adviser is someone who thinks his clients share his sense of excitement about the funds and products he or she sells (and which someone has often sold to him).
Compliance, not to mention adequate professional indemnity cover, is for wimps. Lose these people as quickly as possible.
Their inability to focus on their clients, not to mention the safety of your business, puts both in unnecessary jeopardy.
Adam Samuel is an independent compliance consultant