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FCA orders skilled persons reports for eight advice firms over insistent clients

The FCA has ordered eight advice firms to carry out skilled persons reports in relation to insistent clients following a thematic review on pension transfers, Money Marketing understands.

A skilled persons report, also known as a Section 166 report, checks for weaknesses or failings in a firm’s practices. The review can result in enforcement action and its costs are covered by the firm.

Last July, the FCA found a number of suitability failings in a review into bulk pension transfer advice provided by financial advisers where employers offered an enhanced transfer value.

The regulator found that, in 59 per cent of the files reviewed, the transfers had taken place on an insistent basis after a recommendation had been made. It said a “significant” proportion of files did not record the reasons for the decision to act on an insistent basis.

The FCA said at the time it would work with individual advice firms to address unfair outcomes.

Money Marketing understands that eight firms have been asked to carry out an S166 review as a result.

Experts say the action should be taken as a further warning against processing defined benefit to defined contribution transfers following a negative recommendation in the wake of the pension reforms.

Personal Finance Society chief exec­utive Keith Richards says: “There are a lot of similarities between the incentives to take an ETV and those to access cash under the pension freedoms. For instance, the cash transfer value has already started to feature prominently on annual statements for DB schemes.

“Two of the firms involved in the review have confirmed they used a very well-documented insistent clients process. But we now have evidence that suggests the FCA does not recognise insistent clients and views it as a poor outcome.”

EY senior adviser Malcolm Kerr adds: “There is a connection between this review and the concerns over insistent clients following the pension reforms.

“It is not a good idea to execute a transaction that you believe is not in the interests of the client, regardless of what documentation you have. The FCA is likely to remain concerned about this whole area.”

The FCA declined to comment.

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Comments

There are 7 comments at the moment, we would love to hear your opinion too.

  1. The regulator found that, in 59 per cent of the files reviewed, the transfers had taken place on an insistent basis after a recommendation had been made. It said a “significant” proportion of files did not record the reasons for the decision to act on an insistent basis.
    Very worrying…. FOS has made it clear that provided firm’s document why it is not in a client’s interests to transfer then as far as they are concerned they will not uphold a complaint from an insistent client. It appears that we now have to justify / document why the client was insistent which is an additional action that FOS did not mention. Perhaps MM you should contact FOS and ask what they would expect from an insistent client – remember FOS expect advisers to comply with FCA rules AND guidance. If you read Simply Biz’s guidance on insistent clients, you will find it gives very good guidance to firms which complies with the FCA’s issue here. Get the client to write to you to express in their own words why they wish to transfer in spite of your advice to the contrary. And you can see why they have reservations about insistent clients.
    I tell you what, it is difficult to draw up a fee agreement which clearly expresses that the client will have to pay us regardless of the outcome of a review!

  2. Yet another reason why ” insistent customer” should not exist in the regulated advice world. Regardless of what you may think that the FCA or FOS are saying, they are a law unto themselves and you cannot be certain that they will stand by previous guidance, so why take the risk?

    My personal opinion is that some firms are dressing these cases up as insistent clients for commercial reasons, which is human nature if such loopholes are allowed to exist, and perhaps deserve the level of scrutiny they are receiving. Being ethical and following the rules means you have to turn away business, a small price to pay.

  3. This is a clear case of policitians seeking to achieve something (Pensions Freedoms) which is diametrically opposed to the reality and modus operandi of regulation.

    By using insistent client processes IFAs are facilitating a transfer of risk from the client and the ultimate Provider to themselves. Regrettably, this will end badly for some firms as clients will inevitably “forget” the conversations that took place at the time of the transaction and FOS always look to find reasons to rule in favour of the client.

    Although there are processes which are better than others (and I agree with Sam above), this is surely an area which professional financial planning firms should avoid.

  4. I think if I was the Regulator and saw a firm with over 50% insistent customers I would also perk my head up and go and take a look. Insistent customer should the exception to the rule and not the majority. Clearly something is going a bit wrong and clearly it needs looking into. This has nothing to do with a good insistent customer process, honestly drive by the customer against the strong advice of the qualified advisor which will happen on occasions and be well documented or recorded.

  5. As I understand it, the FCA’s view on insistent clients is in line with Simply Biz’s guidance; the problem is that the FOS seems to take a slightly different view, in that they doubt that the average individual knows enough to sign any disclaimer in the case of an insistent transfer.

    The cases referred to in this article are, however, a different matter altogether, being bulk enhanced transfer advice. The concern is that such a high number of insistent clients is a sign of the advisers relying on insistency as a way to get members out of the scheme with, the adviser hopes, no comeback on them if things go wrong.

    Having been involved with advice on enhanced transfer exercises for several years the idea that 59% of members transferring would be insistent, having been genuinely advised that it was not in their interests, is frankly unbelievable. We have always taken the stance that we would not process insistent clients on enhanced transfer exercises, but the number of individuals that have actually wanted to go against our advice has been tiny. The level of insistent clients experienced in the thematic review smells strongly of advisers trying to abdicate responsibility.

  6. If the Government tells clients they can strip out their cash, and advisers are generally unable to advise them that it’s a good idea, whose fault is it that our good citizens end up being denied their (presumably) constitutional rights? I can see why some might become insistent!

    Presumably it will be OK if such customers say something along the lines of the above if they want their cash?

    Or, maybe not…

  7. From my minds eye, you cant advise one course of action then do the opposite ! and stick a “insistent client” sticker on the file to ensure compliance !

    My issue with these (s166’s) is the apparent ease the FCA pulls them out of their back pocket, this process is extremely expensive for a firm, and a guilty, till you prove your innocence for the firm involved, either way the firm is still left with the full cost of the review.
    This is both lazy and ignorant for a regulator to conduct any kind of audit of process or compliance. A jack boot across the throat approach, if you will !

    I have no issue with my work being checked or audited, however I had to have 10 cases checked back in 2010 at a cost of nearly £20 grand (which I had to pay) all of which came back suitable, that is not right or fair !

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