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Carl Lamb: Advisers are not dictators or nannies

Carl Lamb

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

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Comments

There are 12 comments at the moment, we would love to hear your opinion too.

  1. You are absolutely right Carl. Not in all cases, but in many, the FOS just pays off the undeserving at the adviser’s expense, working on the principle of oiling the wheel that squeaks the loudest. In that way its employees guarantee their future employment indefinitely by way of buying popularity. MPs postbags aren’t filled by letters of complaint and the state is effectively subsidised. Employment law works in a similar fashion, facilitating phoney claims by the devious and dishonest for ‘hurt feelings’, imaginary discrimination and other such drivel. The real workers and wealth creaters pay for the whole shebang. Time to set up a guillotine methinks!

    • The firm discussed this case with Chris Hannant before now and I reminded Chris of it before his recent meeting with the FOS. I have suggested to Chris that next time any meeting takes place with the F-pack he tries to make sure that a practicing adviser attends as so often none of the attendees talking about the issues have any skin in the game.

  2. Unfortunately to my mind there is no such thing as Insistent Clients. There are Clients, people with who you have a business relationship and provide ongoing advice to and who take up your recommendations, and ex Clients/or Non Clients who do not want to take your advice and for who you will not undertake transactions which are unsuitable after taking into account their circumstances. The amount of money involved whether in fee chargeable or in the client’s FUM should have no bearing.

    However I agree clients need to take responsibility for decisions that they take and not find that they can simply change their mind later and expect to be bailed out under all circumstances.

  3. Well said. If you look at other industries, the “adviser”, eg an accountant or solicitor, does not have the level of liability as IFAs do. No matter what my accountant has told me or advised me, what goes on my final tax return or company accounts is MY RESPONSBILITY and this is on the declaration I must sign. Why has the FOS taken the view that clients have no responsibility at all for their chosen actions?

    The FOS goes on about providing the client with the right advice and balanced information so they can make an informed decision but this is very different from reality. Invariably the adviser must “dictate” what the client should do and refuse to do anything that deviates from it or risk a complaint in the future.
    Madness. This complaints culture needs to be reviewed immediately.

  4. I read the FOS decision on this case and made some enquiries and in my opinion the FOS misrepresented the facts. I then made an FOI request of the FOS and was “fobbed off” and am awaiting another response having been told by the ICO that my enquiries of the FOS for clarification have not been fully exhausted. I ahve asked APFA to look in to this case and several others if the FOS continue to refuse to discuss the issues of this and several other cases claiming they would be in breach of the DPA in doing so, which as the individuals can easily be anonimised, they would not be.

  5. Correct and well put! I would add that Phil Castle’s view of recording of any client meetings is more relevant and important than ever. As I have stated before, the advice industry is in danger of consuming itself from within

  6. Just get a disclaimer signed, clearly stating the decision is the client own wish and is opposed to his or her normal ATR. They understand the risks and it is against your advice. What more can you do if you are vilified for this, then you are justified is spitting the FCA in the eye.

  7. I am not aware of the facts of this case nor the background, so in commenting I rely entirely what has been reported in this forum. The elderly have an absolute right to invest to accumulate wealth and to continue accumulating wealth until the day they die. The textbook might advocate the tax efficiency of disposals to others, the lack of need to accept investment risk and the desirability of the general security of income or capital. The latter are all considerations that need to be taken into account when assessing the suitability of an investment. The client’s personal views and preferences cannot simply be ignored, although the adviser should seek to guide assertively. Advisers should seek to dissuade clients from courses that will jeopardise their overall security – or which they consider unsuitable. In advanced stages of age and wealth, some clients will have excess capital with which they may wish to take additional risks. Their objectives in doing so would be an important consideration – but the idea that the FCA or FOS should ban those it deems elderly from accepting risk, in full knowledge/understanding of it and of all the implications is absurd. Equally, the fact any investor has surplus capital does not make the case for the adoption of a risky investment – that he/she can afford to lose excess capital and is amenable to the risk, does not by itself justify an adviser recommendation to accept such risks. The objective in doing so needs to be clearly understood, agreed and recorded – with any adviser objection/reservation unambiguously stated and recorded too. If the adviser acts reasonably in response to the outcome of properly recorded discussion after imparting advice/opinion that would be reasonably expected of a competent adviser, then the adviser should no need to fear a subsequent enquiry by the FOS. If the position is different the FOS needs to reconsider its approach urgently.

    • I looked in to this casa and the adviser did everything which any prudent advise would have done. The advice was inline with case law (Nestle v NatWest) and yet the FOS found AGAINST the adviser contrary to case law, what any CII exam question would recommend and as such contrary to common sense.
      To hide this the FOS have misrepresented the facts by implying the inappropriate use by the adviser of ONE collective investment, however reading the decision notice something didn’t ring true to me as it sounded like the CHARTERED FINANCIAL PLANNER who has worked closely on many occasions with trustees and attorneys where the court of protection have been involved ( they had previously been involved with the settlor who these funds under an LPA had come to after the settlor’s death). The FOS implied they were hassling the former attornet/beneficiary when they had a responsibility to obtain investment instructions and also the fudns were on a WRAP in multiple collectives and not just one. This is misrepresentation and if it was done on purpose (as I suspect) is fraudulent misrepresentation and I am h publicly making that accusation of the FOS.
      I have no personal interest in this case (the firm is not local to me and as far as I know I have never met them) other than from an ethics and calling the F-pack to account for their misdeeds perspective. I seem to be coming across more and more cases similar to these when I speak to other advisers and I thing it is time for the FOS to sit down with the professional bodies and discuss some of the concerns over inconsistent and illogical FOS decisions.

      • Phil, can you kindly provide a FOS decision reference number for this?

        • DRN3752861 you need to read between the lines in the decision and ask yourself some questions before making additional enquiries. You will then find that facts have been misrepresented in the DRN (IMHO)

        • The FOS decision actually shows that not only is the adjudictor and idiot, but so is the Ombudsman as the investment was £500k and they say the money should have been left on deposit. IF that had been 2007 and left on deposit ass they suggest with the best paying banks and building socities, that would have been Icesave of Northern Rock and with teh banking collapse, the protection of the FSCS would have been £32,500. To get FSCS protection , her deposit would have had to have been spread across more than 15 banking licences! Even post banking crisis it would have been 5!
          The “one collective” as you can probably guess from the DRN was NOT one collective, it was a wrap with a mixture of providers and asset allocation of 50% equities and as these monies had clerly been earmarked according to the DRN for the consumers beneficiaries as she did not intend to spend them herself unless care needs eat in to them, the adviser had a responsibility to consider and discuss not just her needs short term needs, but her medium term (should he health care needs start to eat in to the investment) and lastly her long term desire to pass on the value of the money she had inherited from her relative.
          FOS confirm hard facts justified the risk level selected and capacity for loss is also accepted in the FOS decision, so ALL paperwork was in order it was just a difference of (unprofessional) opinion of the FOS staff compared to the adviser, the adviser#s employer and if the full facts were put in front of a selection of teh advisers peers, i suspect nearly all of us would find the adviser “not guilty”. This was a biased decisions and not an adjudication via an alternative dispute resolution service.

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