We live in a world where running a firm of advisers is as much about protecting it against future penalty as it is about helping clients. Of course, ensuring any advice is in the client’s best interest is by far the best way of protecting against any future complaints. But just how much responsibility should we take for the decisions our clients make, having given them our advice?
The dilemma facing advisers is how to prove that, whatever the age, education or ability of the client, we have correctly assessed they know what they are doing, understand the risks and have made a considered decision.
If the case comes back to bite us later on and the client is represented as being less capable than our assessment determined, we stand in grave danger of having to face the wrath of the ombudsman.
However, the problem goes deeper than that. It seems to me the ombudsman’s adjudicators do not accept the client has a right to make his or her own decision and, importantly, bears some responsibility for that decision if all the facts have been explained. As advisers, we are now expected to be a financial nanny, deciding what is best for clients and not allowing them to have their own way.
The problem is sometimes the client is adamant they want a specific approach that does not follow their normal pattern of behaviour. I have had clients generally cautious in their investments who decide to take higher levels of risk with a particular pot of cash, such as an unexpected inheritance.
This seems like a perfectly reasonable approach but do I advise against the higher risk, given their normally cautious risk profile? If they insist, how do I protect myself against a later claim the investment was unsuitable?
In a recent case, the ombudsman ruled against a highly regarded local firm largely because the client involved was in her 70s at the time of the advice and had no experience of the type of investment used. The firm’s defence was that it had discussed lower risk options but these had been firmly rejected and she insisted on the higher risk route. It would appear all their discussions were documented and the rationale behind the advice explained in detail with regard to the client’s stated preferences. It seems to have done everything according to the book but still the FOS ruled against it.
Frankly, her age should not be a factor. I have many clients in their 70s more than capable of making good financial decisions. The issue is whether or not the adviser should permit the client to take on a new type of investment, having no previous experience in that area.
Advisers are not dictators or nannies. We are there to serve clients. The ombudsman must recognise clients’ rights include the right to express preferences and make their own decisions – and to take responsibility for those decisions if things go wrong as a result.
Our risk warnings are not put in the small print but are a core part of the discussion with the client, and carefully documented after any meeting.
However, now making claims against firms has become commonplace, the only thing we can do is to take a defensive stance. We have to say no to insistent clients and advise against anything that might leave us vulnerable later. The client can no longer be allowed to have the last word.
Carl Lamb is managing director of Almary Green