One of the things I have learned to expect whenever I write something vaguely contentious in the pages of Money Marketing is the arrival of at least one “Well, what would you do?” email in my inbox.
In the hands of a particular interlocutor who makes contact with me several times a year, our communications mostly tend to be brief and friendly. Occasionally, we end up exchanging up to a dozen emails, each slightly more fractious than the preceding one.
I recall one discussion about 13 years ago, in which my refusal to accept that IFAs were in the same professional league as accountants and solicitors – and potentially health clinicians too, as long as the thorny issue of qualifications could be resolved satisfactorily – riled my debating partner so much he did not make contact fo r six months.
A couple of weeks ago, a subject I received several emails about was that of unregulated investments. Should they be excluded from Financial Services Compensation Scheme coverage? No, was my contention. They are being recommended on a regular basis by advisers to people who are not sophisticated investors, in which case they clearly need to come under the compensation scheme’s remit.
For my friend, this was too much and a “Well, what would you do?” email duly arrived. He gave the example of one client who had come to him with a particular set of needs, which he had addressed through the use of an unregulated investment as part of a complex re-ordering of her portfolio. Apart from challenging me on the specifics of his recommendations, this adviser asked: “Are you suggesting we should never recommend a Ucis to someone who is not a sophisticated investor?”
My response followed a number of lines. The first was that I had no intention of second-guessing my friend’s advice choices. He knows his client and her needs far better than I do. If he is confident the advice he gives meets those needs, he does not need validation in that regard from me. My second line of defence, which referenced our discussions about professionals years ago, was that medical history has often shown how medications originally created for one particular illness can be used to treat another.
One of the classic examples is Amitriptyline. If you have ever suffered from long-standing nerve-related pain there is a good chance you will have been prescribed this drug. Yet it was originally developed and is still used to treat major depressive disorder and anxiety disorders, as well as attention deficit hyperactivity disorder. It was only many years later that researchers found it was also incredibly effective for chronic (long-term) pain caused by arthritis, spinal problems, fibromyalgia, chronic headaches and peripheral neuropathy.
In other words, it is entirely consistent with good financial advice to consider sophisticated products for clients whose overall profile would not normally justify their use – as long as you have given appropriate consideration to all the issues involved.
Which takes me to my third point. Years ago, I was having a discussion with a good friend who is a serious incident investigator in the NHS. Serious incidents include cases where death or serious injury to a patient has resulted from mistaken decisions or omissions on the part of health professionals.
One of the first things he learned in his role was that record-keeping (or the absence of it) is the crucial problem in almost all the decisions made by clinicians. When looking at a case, he operates by a simple set of questions: is there a record of that episode of care, or of the symptoms manifested by a patient? How clear and detailed is that record? Does the record discuss the specific treatment being prescribed and/or administered by the health professional, as well as the outcomes of that treatment?
Does it make reference to reviews being carried out at regular intervals to determine the next phase of treatment? If some or all of these questions are in the negative, this constitutes a care and service delivery problem regardless of whether, on balance of evidence, the original treatment decision was potentially correctly made.
Exactly the same strictures apply to unregulated investments – or any investment for that matter. If you can show appropriate consideration was given to the many variables that may affect an individual client’s needs and how your recommendation matched his or her risk profile, you are a long way there.
If you can evidence that a detailed discussion was held with a client about a product and they understood what it is meant to achieve and its relationship to the rest of their portfolio as well as those risks, that is the second part of the battle won. The third element is that of being able to demonstrate in the client’s notes a regular review of that portfolio and what consideration you have given to any changes to all underlying investments in the light of any changes in their performance.
Evidence that and you should be safe from regulatory scrutiny, in my book. I am not sure I fully persuaded my friend that I am right on this one. Either way, I look forward to many more “Well, what would you do?” contacts from him and others who may wish to email me.
Nic Cicutti can be contacted at firstname.lastname@example.org