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The dawn of ‘fear-based’ insistent client advice charges

Advisers are adopting what has been dubbed a “fear-based” advice charging model as the thorny issue of insistent clients rumbles on.

The FCA published a factsheet on dealing with clients who want to act against a recommendation in the summer. But despite regulatory assurances that firms can deal with insistent clients if they follow normal suitability processes, advisers are still concerned about potential liabilities and are factoring in a “risk premium” as a result.

Data obtained by Money Marketing suggests eight in 10 Personal Finance Society members would refuse to do business with insistent clients.

So does action need to be taken to allow more people to access advice on pension freedoms? And do the FCA and Financial Ombudsman Service need to do more to reassure advisers they will not face misselling claims in the years ahead?

Fear dictating advice

Under growing pressure from the industry to act, the FCA published a factsheet on dealing with insistent clients in June.

The guidance said advisers should follow three “simple steps” but evidence is emerging of advisers creating new charging models based on covering the cost of potential claims.

Investment consultancy Gbi2 managing director Graham Bentley says he has found advisers using their professional indemnity insurance excess as a proxy for charging for defined benefit transfers.

He says: “You’re getting cases where the client wants to transfer because they don’t want the income and maybe want to leave the money to their kids.

“The adviser doesn’t want to do it but is fearful of losing the client. They are telling the client upfront: ‘Your kids might come along in a few years and question why I allowed the transfer, and as a consequence I need to cover myself if that happens.’

“That’s a fear-based charging structure. There are a lot of customers in that area who are not being given the opportunities they would expect to get purely because of advisers’ fear of the regulator and the FOS.”

One quote was set on the adviser’s £5,000 PI excess.

Bentley adds: “It struck me as a bizarre way to set a price, it’s nothing to do with the work involved or the value to the adviser.”

Threesixty managing director Phil Young says there is growing talk among advisers of adding a “risk premium” to areas of business where there is fear of reprisal.

He says: “Around insistent clients and DB pension transfers in particular, people have been talking about applying a risk premium. It doesn’t surprise me firms are aligning their prices with PI cover. Firms who are doing this type of business because it’s regarded as higher risk will instantly have to pay more money on their PI premium so straightaway there’s a greater cost to doing business in this kind of market. Some firms with transfer permissions are avoiding doing pension transfers because they will have to fill it in on PI forms and immediately the premium is getting loaded as a result.”

An FCA spokesman says: “The FCA is not a price regulator – it is a commercial decision for firms to decide how much they charge for the services they provide.”

Consumer detriment

The PFS has led calls for changes to how the FCA’s advice requirement is applied to pension freedoms.

Since April, a consumer wishing to transfer safeguarded benefits, mainly DB, worth £30,000 or more has had to take advice first. In most but not all cases the advice is not to transfer, leaving consumers searching for an adviser who will transact the transfer despite not recommending it.

In July, a Money Marketing Freedom of Information request revealed 13 per cent of enquiries to the FOS relating to the freedoms were against providers insisting on advice being taken.

PFS chief executive Keith Richards says he has seen little evidence of advisers introducing a special fee structure for insistent clients, adding the majority will either take on clients on normal terms or opt out of dealing with them entirely.

He says: “The majority are reporting that any consumers only wanting facilitation are generally not being offered a service. This will only lead to increasing frustration and so needs to be addressed from a consumer interest perspective.

“Consumers should be empowered to make their own decisions but must also be empowered to take responsibility for their decisions, especially where they wish to act against a regulated personal recommendation. This would largely resolve the issue of both access and facilitation and potentially mitigate the impact of a future poor outcome.”

But The Financial Inclusion Centre director Mick McAteer says: “The balance is right at the moment, I’m not sure there’s a need to adjust any further. There’s enough leeway there and we need safeguards to make people stop and think.”

According to a survey of 1,100 PFS members, seen by Money Marketing, just 2 per cent would facilitate a DB transfer against their advice without caveats.

Eight in 10 said they would refuse a transfer if they deemed it not in their client’s best interests. Only 16 per cent said they would consider facilitating in line with FCA guidelines.

The regulator has already published guidance but Richards, who discussed the issue at a meeting with pensions minister Ros Altmann last week, says the FCA guidance “doesn’t go far enough”.

He says: “What it doesn’t do is provide any reasonable level of comfort to the advice firm that taking these steps will protect them from future sanctions from either the FCA or more specifically, claims firms, FOS and the Financial Services Compensation Scheme. The absence of such certainty also exposes the advice firm to a possible increase in PII costs or the withholding of cover altogether at some future point.”

Lift Financial Chartered financial planner Kevin Neil says: “There are some advisers who seem to think if they advise someone not to transfer and they go on to transfer with someone else or on their own they are carrying the liability for that, but I can’t see where that thinking comes from.

“Some people have made the point there are advisers saying they won’t get involved in this area, however every day they are advising people not to purchase an annuity and go into drawdown instead. That’s the same advice process – guaranteed income against managing a fund to provide long-term income or leave money for inheritance. So it’s unclear what they are objecting to.”

An FCA spokesman says: “We have been very clear on what we expect advisers to do with insistent clients. We’ve outlined simple steps to follow – provide suitable advice, make clear the client is planning on acting against that advice, explain the risks of their intended course of action, and keep a written record.”

FOS reform

Despite assurances from the regulator and the FOS, advisers are clearly not confident they will avoid claims even if they follow guidelines.

Aberdein Considine financial planner Tom Ham says: “There are too many IFAs who are branding people who just want to look at a transfer as insistent when that’s not the case. But I can see why people distrust regulators because it’s such a fluid industry – look at the massive upheaval we’ve had with pension freedoms.”

Apfa director general Chris Hannant says the trade body’s submission to the Financial Advice Market Review will address advisers’ waning confidence in the Ombudsman.

He suggests one way to rebuild trust would be splitting the FOS appeals process away from the organisation in line with how the FCA and court system operate.

He says: “When you’ve got someone else potentially marking your homework it keeps you focused on doing something you think will stand the rigours of scrutiny. There’s also the idea that justice needs to be done, and to be seen being done.”

He adds the Government will have to make changes if it wants to continue to use advisers in a “quasi-consumer protection role” and encourage lower cost business models.

“It goes broader than just advisers. The Financial Advice Market Review keeps coming back to simplified processes and people have shied away from that in the past, one of the reasons is they are concerned how a simplified process would be judged by the FOS.”

In numbers


Percentage of advisers who would refuse to facilitate a DB transfer if not in clients’ best interest


Proportion who would consider facilitating a transfer in line with FCA guidelines


Percentage who would facilitate a transfer on the basis that a client might go on to take unregulated advice


Proportion who would be willing to facilitate a transfer in all circumstances

Source: PFS survey based on 1,100 advisers

FOS: We can’t provide guarantees

Advisers will not be given a guarantee the Financial Ombudsman Service will never look at a complaint even if FCA guidelines are followed.

The regulator has published a factsheet setting out a three-step process for dealing with insistent clients but senior industry figures say more help is needed. Personal Finance Society chief executive Keith Richards says the FCA’s position “doesn’t go far enough” to enable advisers to work with insistent clients.

But FOS head of media Martyn James says while the Ombudsman “appreciates this has been the subject of much worry for advisers” the service “can’t provide a guarantee that we would never be able to look at a complaint”.

He says this is because there have been “rare occasions” where people have filled out execution-only forms and after investigation the FOS found individuals were given “an intense hardcore sales pitch”.

“It’s incredibly rare but that’s why we can’t give that guarantee. But we can say it’s extremely unlikely that we’d look at a case like this.”

He adds: “The FCA’s factsheet on insistent clients is very clear. We understand advisers have some concerns about hypothetical scenarios but all the information is there.

“Many advisers have said they are concerned about complaints coming into the Ombudsman. That is highly unlikely to happen and as long as they follow the process that has been in place for a while now, there shouldn’t be a problem.”

The FOS says it does not yet have figures on the number of complaints relating to insistent clients but expect numbers to be “low”.

Sam Brodbeck

Expert view: Phil Young

Costs for advising on defined benefit pension transfers are always going to be expensive, insistent or otherwise, and they are more likely to go up than down. You cannot give proper transfer advice without full financial planning and advice. The reasons to transfer do not revolve solely around the critical yield anymore.

Only when you look at a client’s entire financial portfolio can you make an assessment of whether the pension income from the DB scheme will make an impact on the client’s portfolio, or if it is safe to regard the pension as available for another reason, such as to take more risk or leave the pot behind to children. A full financial review exploring all the options is not cheap. A quick look at the transfer in isolation is not that useful with no context.

Advisers will always be making a guess at this but there is a fair chance the more pension transfers you do, the more you will pay in professional indemnity premiums at some point.

I know a number of advisers who have the permissions and qualifications but would rather keep DB transfers off their PI proposal form so pass the work on.

Transfer work is also usually subject to compliance pre-approval and sign-off by a pension transfer specialist. Even the person undertaking the compliance sign-off generally needs some specialist knowledge in this area. Specialists and eyeballs cost money.

I have never liked the phrase “risk premium” when used by advisers because it is vague. However, there has always been an assumption that pension transfer advice is higher risk for the adviser and not just the client. Explicitly factoring in the cost of future complaints into the price of a piece of work sends a dangerous message, but there is no doubt it happens. Using the reasons above gives a much more sensible justification for the extra costs. The shortage of specialists to meet demand makes higher charges inevitable.

Lowering the threshold for standards of advice is not in the interests of anyone. Clarifying insistent client requirements will not make the advice given any cheaper so consumers will still complain about this. Allowing DB scheme members to transfer without the need for advice will resolve this, but has its own risks for consumers. Then again, weren’t we all told the public should be trusted with their money?

Phil Young is managing director of Threesixty


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There are 18 comments at the moment, we would love to hear your opinion too.

  1. I think it simply comes back to the VERP charging principle, i.e. Value Expertise Risk & Profit.

    Despite the FCA assurances that following their guidelines will avoid issues, the reality is that if clients complain in the future then there is then a huge additional compliance cost on the adviser, and clients can refer their complaint to FOS even if the adviser has a water tight case.

    Whilst FOS might not rule against the adviser, the adviser still incurs significant costs (time, external compliance consultants, dealing with PI insurers, etc.) to defend their position.

    The cost of defending any complaint naturally cannot be recovered from the client; consequently any adviser writing any business should, at the very least, consider the costs of dealing with a future complaint, however unwarranted that complaint might be, when setting their charges.

  2. I will advise on DB transfers in the right circumstances and have undertaken 3 this financial year, and advised not to transfer on 4. I have just completed the renewal for my PI and the excess for DB transfers has risen from £5,000 to £15,000! This is starting to make me reconsider offering advice in this area (and, “yes”, I do think that my advice process is quite robust) but how can I possibly do that? There are circumstances, and ill-health is the obvious one, where a DB transfer into FAD is exactly the right thing to do so I will continue but will need to review my fee structure. I need to be paid for my time and expertise and the cost of the TVA report, of course, but now need to think about factoring more to help defray ever increasing costs of staying in business. I have also offered advice to deal with PSO’s and divorce where, often, a DB transfer is subject to a Court Order – the PI people seemed rather unsure about whether or not that constituted DB transfer advice!

    Hey, ho!

  3. How sad that we work in this industry of so much fear mainly based on myths of our own making. Can everyone please note the FCA have given you a process and FOS are only not giving a blanket response because we as an industry have constantly dealt with insistent customers in poor manner and almost a protection against liability rather than advising customers properly. Customers deserve more than this.

  4. Two elements at play here, fear and trust. The first created by the regulatory regime, actions and words of the FSA/FCA/FOS/FSCS. The second a result of the first. I’m sure the irony of all this now impacting clients (or those that can actually afford advice) is not lost on the advice community. Regulation is hurting clients.

    For most advisers there is no problem because demand far outstrips supply when it comes to advice so business is generally very good. Let the regulators and politicians get on with ringing their hands, it’s up to them to fix the problem they created, not advisers.

  5. I am a little bamboozled about this since for many IFAs I suspect that the main cost will revolve around doing the initial work which does of course require the knowledge and experience of a pensions expert and the charge will reflect this. If following the recommendation the client still wishes to proceed you can walk away and invoice the client for the work already done which will be the bulk of the charge. (Or are some advisers still contingent charging?)
    If the client wishes to proceed against your recommendation then there is neither risk to the firm nor to your PII premium (in theory). If set up correctly (because clients may refuse to pay you for a recommendation that goes against their wishes) you get paid for high value work or weed out those clients that do not value your advice or have a predetermined agenda.

  6. The statement from the FOS sums up the dangers: Advisers will not be given a guarantee the Financial Ombudsman Service will never look at a complaint even if FCA guidelines are followed. So of what value is the FCA’s advice process for insistent clients if the FOS disregards it?

    What’s needed is a clear and unequivocal ruling from the FCA (binding on the FOS) that if, having been provided with advice, a client is insistent on going against it and signs a disclaimer of liability on the adviser, on his head shall it be and he will have no grounds for complaint. No other solution is workable.

  7. Last year (pre changes) I advised a chap who was terminally ill with DB plans worth £130,000. The schemes would offer £30,000 as a settlement. He has no dependants. I transferred them to a FTA to bridge the pensions freedoms in April. He received 25% TFC up front plus a years annuity. His sons would receive the full value of the remaining fund under pensions freedoms.
    If a similar case presented itself now, I couldn’t act. The existing pension schemes would have ripped him off by £100,000.
    What a great “customer outcome” FCA.

  8. Jane Hodges 19th November 2015 at 9:34 am
    Customers deserve more than this.

    Possibly. But whilst there are claim chasers and clients who claim just to try their luck and believe me there are those that do we really don’t have any other option but to cover our backs. All well and good the FCA saying as long as……but as the FOS is a law unto themselves and seem to pluck out of thin air things we should have taken into consideration such as ‘you can’t expect clients to know what it is they’re signing’, ‘You could get them to sign just about anything’ and as the pointed out above there have been cases where clients have signed execution only forms but were advised etc., etc. The question there has to be ‘why did they actually sign the form?’ Are these people adults or children who need additional protection against their own stupidity? The FOS have decided that one. Best advice. Avoid, ‘Insistent Clients’.

  9. the higher the risk = the higher the premium , thats a fact of life ,

  10. For those advisers completing these insistent DB transactions, for whatever reason, you are weakening our position to force change.

    If all advisers refuse then the Government, FCA, FOS and FSCS will have to act. All you are doing is weakening our position, as it will be the consumer that will drive the changes we all know are needed when they cannot get what they want. You are building up the next adviser scandal and a large FSCS bill for those that will remain after you have left.

    All advisers know this is a ticking time bomb and I would prefer unless agreed the transactions not be completed. My duty is to protect the client, by arranging what I know will be a poor outcome is not professional.

    The PI will increase for pension transfers and I would not be surprised to see insistent DB transfers being removed from cover. Your insurer can see the risks this should tell you something.

    We have an opportunity to gain full protection if and only if we all agree to only transact and sign for clients that the freedoms are correct. The consumer will force the change, we will be seen as professional, to be trusted and we will avoid being blamed for the next scandal. You want a legal long stop, you want reduced fees, you want the FOS based on law then stop transacting insistent clients and let the consumer force the changes and take the liability.

  11. The need to take advice is a legal requirement for DB transfers to do whatever…So when the adviser has given his advice to the DB scheme client, then whatever the client chooses to do with that advice…. isn’t & wouldn’t be any ongoing concern to the IFA.. as the FA has only been asked to give it…And more importantly, not to legally force the client, either way to act on said advice…Thus, its wholly the clients personal choice to act or not on the advice… legislation states that the client only needs to take advice and not to act on it whatever way they choose…..So where’s the problem children….Protectionism / greed at its most ruthless i’m afraid…closed shop

  12. The emergence of so called Claims Management Companies, whose only interest is in charging a large % of the ‘FOS Compensation’ has only just begun, and you can be certain that they will ignore your ‘formal complaint’ response, and throw everything and anything at the FOS in a highly biased manner that ‘leads’ adjudicators with no formal financial services qualifications (and certainly no Pension Tranfer Specialist qualifications), to find in favour of the complainant often without investigating ecidence that might determine otherwise.
    I have just seen a case where the FOS adjudicator found in favour of a complainant, against an IFA because ‘I couldn’t find a Critical Yield Table’ that confirmed your calculation!

    And that despite the underlying investment outperforming the Critical Yield thereby rendering the loss calculation resulting in a real surplus.

    God save us all from such abject ignorance.

  13. Is there ANY area of pensions, other than straightforward accumulation in a conventional packaged product and perhaps enhanced/underwritten annuities, that ISN’T high risk these days?

    At this rate, PI insurers will automatically slap a hefty loading on your premium if you advise on anything in the pensions arena other than the above.

    I anticipate more and more intermediaries restricting the types of pension products on which they’re prepared to advise. Going outside that safety zone simply isn’t worth the risks.

  14. Thank you for the new logo. (I think!)


    All these awards are going to your head. The headline is just hyperbole.

    It’s not fear – it is far simpler. If you have to deal with idiots you can charge whatever you like – their stupidity generally knows no bounds and they will invariably pay anything to get what they want.
    If you want to mitigate risk, just ensure everything is in the wife’s name.

  15. As a pension transfer specialist, if I advise a client not to transfer their DB pension I will not facilitate the business on an insistent client basis.

    If I were a GP, and my advice to my patient was to apply ointment to a badly burned finger, I would not then facilitate the patients request to have the finger removed because it was painful!

    Pension miss selling cost the financial services industry 11 billion pounds in compensation between 1988 and 2005, when many thousands of people were wrongly advised to transfer out of good occupational pension schemes. Advisers are right to be wary of pension transfer advice repercussions from both the FCA & FOS.

  16. There really is a theme developing here?
    When so many illustrious advisers with hundreds of years experience (combined not individually!) are saying the same thing, maybe they are worth listening to?
    Alternatively I guess you could continue to try and reinvent the wheel!

  17. Of course there should be a risk premium (or, as it might more accurately be named,an ‘FOS Premium’).

    There’s absolutely no way I would trust these woolly stances being offered as ‘reassurance’ from either FCA or FOS. Frankly, the track record of regulators is not one that engenders trust in such matters.

    If legislators and consumer groups want to create widespread access to the pension freedoms then they are going to have to come up with something much better than this.

    Nothing short of a cast-iron, statutory protection against retrospective judgments from FOS (or it’s successors) will suffice for me thanks very much.

    For that to not be abused by rogue IFAs though, I suggest that there would need to be a requirement for the consumer to obtain independent legal advice prior to transfer completing – similar to the position with equity release business

  18. The issue here is the burden of proof that FOS appears to apply. The article states that FOS consider it rare that customers are hoodwinked into signing an indemnity but the industry believe, with just cause, that any customer claiming “I didn’t know what I was signing” will be believed.
    A successful mis-selling claim should require the customer to prove that he has been misled and FOS should publish a statement to that effect.

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