Just say no: Fears grow over ‘insistent’ transfers regulatory backlash

Networks and compliance experts are warning advisers against using ‘insistent’ customer processes to appease clients trying to transfer out of defined benefit schemes.

Likewise, trade bodies say allowing people to proceed against advice is like “handing a revolver to someone who talks about committing suicide”.

But the Government is standing behind its ‘freedom and choice’ agenda and says people should be able to act against recommendations.

Although the Financial Ombudsman Service has laid out how customers should be dealt with, advisers are fearful of a regulatory backlash in the future.

Yet turning down long-standing clients’ requests could be a step too far for advisers concerned they will take their business to less scrupulous firms.

So should advisers trust the FOS’ assurances that if they execute transfers in the right way they will be safe from claims? Are providers willing to accept transfers without a positive recommendation? And will the Government’s popular pension reforms come unstuck as millions of members of DB schemes find their access to the freedoms frustrated?

Mixed messages

This week support services firm SimplyBiz sent a note to advisers warning them not to transact requests from clients insisting on transferring despite an adviser concluding a move would not be in their best interests.

The note, seen by Money Marketing, says the firm is “concerned about mixed messages from FOS and the FCA” and warns “acting against our advice could be a substantial risk to you and your business”.

Networks are also steering their members away from waving through actions they do not support.

Personal Touch Financial Services sales and marketing director David Carrington says: “We don’t see a place for an insistent client in effect overriding an adviser’s view. The client might be a long standing friend, but a new wife might talk to a claims management company and file a complaint years later. Painful as it may be, they should walk away. It’s not the risk of how the world looks today, but how it could look in five years.”

Sense Network chairman Steve Young says: “Our members are very aware of the potential risks and we do not know of any adviser who would wish to execute deals which they did not consider to be in the customer’s interest.”

Personal Finance Society chief executive Keith Richards says advisers should “just say no” to requests.

He says: “Insistent client process has been used in the past. Some believe it is an appropriate process but I’d suggest that was better used pre-RDR and shouldn’t be considered post-RDR. There are other opportunities for advisers to consider.”

Apfa director general Chris Hannant says the trade body plans to seek clarity on insistent transfers from the FCA.

He says: “You don’t give a loaded revolver to someone who says they are thinking about suicide, and a similar principle could be applied to transfer requests.

“But advisers need to know exactly where they stand on this and in the current environment you would be a very brave person to go ahead and process a transfer when you have advised against it.”

The FOS says it expects a letter “in the customer’s own writing” confirming they want to proceed despite not having a recommendation and that they have “full knowledge” of the risks.

Clients should also list the reasons given by the adviser and explain why they need access. It also notes recent FCA guidance which gives repaying a mortgage or loan or making a “suitable” investment as examples of “rational” reasons for using a lump sum.

But regulatory consultant Richard Hobbs says despite the FOS’ assurances, insistent pension transfers are “just too toxic” and in any case have never been part of the regulator’s rules.

He says: “On the one hand Chancellor is producing all kinds of freedoms, on the other hand the regulator has made it impossible to deal with insistent customers.

“The Ombudsman is right in its approach, but it’s too risky for advisers. The regulator has given off enough signals and insistent customers just have to be ignored.”


While networks and compliance specialists are standing firm, advisers on the front line may find themselves under intense pressure after April as millions of people assume they will be able to take advantage of the new flexibilities.

Last month, actuaries Hymans Robertson surveyed 500 employers with DB schemes and found on average they expect about a third of members will try to transfer some or all of their pension to a DC scheme. In 2014 there were about 11 million people in DB schemes.

Under FCA rules, members with pots worth £30,000 or more will be first required to take advice from someone with a pension transfer specialist qualification. As announced in the Budget, the Treasury is also considering extending this to make advice mandatory for people considering selling their annuities.

However, the Treasury consultation says “people would still be at liberty to choose not to accept a recommendation”, suggesting the Government is comfortable with people acting against the judgment of advisers.

Threesixty managing director Phil Young says this is a rare example of the Government relying on advisers and that the industry should take the opportunity “to ask for something in return”.

He says: “This is the only occasion I can remember where the Government needs advisers to push something through, and they should be asking for something in return – the trade bodies should ask the Government to make the FCA give clear guidance on this issue.”

Pension providers appear reluctant to accept clients without a positive recommendation.

Standard Life, Fidelity and Sipp provider James Hay all say they will not take in members acting against an adviser’s wishes, meaning thousands may find even if advisers do process transfers there may be a dearth of providers willing to receive funds.

But with the election less than two months away, that may be a problem for another Government.

Adviser view

Tim Page, director, Page Russell

I understand the natural instinct of advisers to want to help their clients but as a business owner I’d say we’re not going to touch this with a bargepole.

I can see in certain circumstances how advisers might feel pressured but they need to be strong enough to realise it’s their job to advise not take orders, and if it’s not in a client’s best interests then they shouldn’t do it.

One off business is generally higher risk and insistent pension transfers are higher risk still. In the current environment advisers would be well advised to steer clear if they value their professional indemnity insurance.

Tristan Brodbeck, director, Tristan Brodbeck Financial Planning

It is every individual’s inalienable right to ignore common sense, cash in their pension, pay all the tax they would have paid throughout their retirement in one fell swoop, then plough the money into buy-to-let properties at the top of the market. In fact, if they don’t I suspect Osborne will be disappointed. It’s also every IFA’s right to tell these clients where to get off. In 10 years’ time we’ll look back at this and marvel at the Chancellor’s recklessness.

Expert view

Keith Richards

The evolution of financial advice into a profession can be measured on so many levels: trust among existing clients, acknowledgment by the regulator and increasing understanding and recognition by the Government.

Pension freedoms undoubtedly represent an opportunity for the sector but they leave advisers open to being targeted as a facilitation service by “insistent” clients.

A compulsory requirement for professional advice is the logical answer to complicated and high-risk issues, such as DB to DC transfers. However, despite the complexity of such transactions, the Government says people will still be at liberty to choose not to accept the advice they are given – without inferring that an adviser should be involved in facilitating a non-suitable recommendation.

Meanwhile the FOS believes consumers cannot reasonably be expected to understand the complexity and associated pitfalls unless, of course, they have equal or greater knowledge than the adviser.

But surely the fact a client would pay for advice and then ignore it should rule out any further interaction? Consumers are being referred to professional advice for good reasons. Facilitating potentially irreversible poor outcomes is not one of them.

Even if it is highly improbable an IFA would sanction something that went against their professional recommendation, the danger is clear. Obtaining an “insistent” client declaration and documenting the risk warnings in a suitability report will not protect against future liability in the event of a claim.

The increased respect the advice profession has earned must not be compromised by putting commercial opportunity before professional ethics.

Keith Richards is chief executive at the Personal Finance Society


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There are 19 comments at the moment, we would love to hear your opinion too.

  1. I am still at a loss to understand when someone will ignore your recommendations and want to proceed under the ‘insistent client’ rule.
    If you have an initial meeting at your expense you will find out what the client wishes to do. If it is cashing in a DC pension, discuss it, the probable downsides, their anticipated state pension income and the benefits of leaving it. Once that has been done, it is not up to us to say ‘I think you are foolish so I will recommend you don’t procee’. If someone wants to cash in to buy another asset, explore their plans. Point out the tax consequenses, look at their anticipated growth and if it makes some sort of sense, let them know your fees and do it. If you feel that buying a leveraged buy to let property is not as good as income from bonds and shares, especially if they say they are lower risk, would you do it? Who are you to say that income and growth from property is higher risk than an arteficial risk rating of funds via a commercial risk rating system. You may well be correct, or not.
    If you are so concerned about the regulators small print as well as the FOS if you mak a b**s up, you should not be in this business. We are here to advise our clients about how they can achieve their goals and aspirations. We are not moral arbitrators put on this earth to prevent people from doing what an industry rule set states is right. We should not be so arrogant! We are no differentto barristers in the way we take on clients. If they have no case, tell them at the initial meeting. If something is possable, make sure they can pay and do it in the most skilled way you can. DB to DC is fine, if the numbers look no good but the client still wants to continue, they are hiding something from you. Find out!

  2. Pension freedoms….loaded guns and suicidal clients is no excuse… the FOS will still come after you in your retirement home years later when insistent clients realize they made the wrong choice.

    Government states, individuals MUST have the freedom to choose .. shame that the Financial Ombudsman doesn’t necessarily see it that way.. So much for an elected government

  3. Keith Richards: “In 10 years’ time we’ll look back at this and marvel at the Chancellor’s recklessness”

    10 years? The marveling is well underway already.

    And it has been since the initial announcement. It is just that voices in the industry have been reluctant to position themselves publicly against what is undoubtedly a popular move.

    Which of course the Chancellor and his cadre of advisers knew would be the case when they hatched this idea. Politically brilliant but totally irresponsible.

  4. Suggestion from an individual who may not be around for much longer to “have freedom of choice and guaranteed guidance” contrasted by the FOS clear direction and a regulator who will be looking over your shoulder for ever.

    Think I know which one I will follow……

  5. Call a spade... 27th March 2015 at 11:17 am

    So someone gets to retirement and they want to take out all their money. Provider says, not without advice. Adviser says, not god for you, so I won’t transact it. Person is left in limbo, but needs an income, so the only option is to buy an annuity. They can’t be bothered (or don’t know how) to shop around, so they buy from their pension provider. So much for pension freedoms!

    Now let’s suppose this person wanted to do buy to let and 10 years on, property prices and rents have gone up tenfold. So they go to FOS and say, this adviser wouldn’t let me do this, so I’ve been stuck with an annuity when I could have had 10 times as much. Suppose FOS comes after the adviser for NOT advising??

  6. My comments published 6 November now appear to be the common consensus, backed up by the FOS announcement, and as I have stated in other threads the regulated advisory community is not there to ensure the successful implementation of Government policy if it amounts to professional suicide.

    Political soundbites often do not relate to real life, I am not a political animal or activist, but you do feel that you are banging your head against a brick wall when pointing out the facts to Governments and regulators, most of whom have no experience of the industry we work in.

  7. @Pro V #1
    Despite your comments you are missing the point. Nobody is saying you can’t do what you think is right or stopping you from taking the course of action you are championing. Each adviser is free to decide whether they want to do this business so feel free to go right ahead.

    This is NOT a moral question/debate article, it’s a business risk question/debate.

    It would be very simple for the FCA/FOS/Government to come out and say, “follow this process for an insistent client and you will be safe”. They haven’t and won’t and you should ask yourself why…

  8. Society is generally irresponsible. Politicians like to give people freedoms – it makes them electable. But when it comes to responsibility – it is all about the now.
    If someone wants to do something which you feel is stupid, the least you can do is work away from it. It is their right to be stupid or irresponsible – provided no-one else pays for it! There is a grey area of course when giving advice as to which is the best solution and provided you document your recommendations and the related risks then advisers should be able to facilitate a client’s wishes. The word insistent I take to mean one where it is clear to you in your professional capacity that the action the client wishes to take is unsuitable and there are better solutions. It is not a moral view, but an issue of integrity. Doing the best for your client. Not what they want but to address their need. And I do not accept the argument that if I do not, someone else will so why not me? Too many advisers are prepared to facilitate insistent clients for their own self interests.
    But without FCA and FOS guidance there are huge risks to firms. Does this not scream “change the FSCS levy”? Should advisers that wish to cede to insistent clients where it goes wrong later pay into a funded levy now i.e. underwrites the potential risk – not those that are left when it blows up and who refused to facilitate insistent clients.
    Endowments come to mind. When they blew up, who paid for that mistake?

  9. @ Grey Area:
    “This is NOT a moral question/debate article, it’s a business risk question/debate.

    It would be very simple for the FCA/FOS/Government to come out and say, “follow this process for an insistent client and you will be safe”. They haven’t and won’t and you should ask yourself why…”

    Surely the answer why is that for the FCA/FOS/Government it is also a form of business risk. All the parties know that bad things are likely to come of this. The risk for everyone is that the blame will ultimately get pinned at their door.

    Any guidance from FCA/FOS/Government that is actually of any value to the industry (ie enables business to be carried on without fear of blame in the future) would expose whoever gives that guidance to fear of exactly the same thing.

    Perhaps brighter minds than I can find a way out of this. But I cannot see any outcome other than perhaps some further guidance forced out of FCA etc which, after close inspection, the industry is bound to find inadequate.

  10. Many years ago, I had a very wealthy married couple as new clients. They had £500k in lacklustre pensions and £500k in the bank. I moved the pensions and split them between funds with guarantees and normal investment funds. The markets went up and the clients thought the guaranteed funds had performed not so well (true). They asked me to move those funds to something which was very volatile. I pointed out that this was wrong but they went ahead and ordered the switch forms themselves (as the provider phone records showed), I processed the forms and the repeatedly said I do not recommend this action. When the markets plummeted so did their funds! The subsequent complaint was not dealt with very well by my then network and FOS found in their favour (after splitting the complaint so that each client received the maximum payout each!). When I sent the recording to FOS after I had had enough of the network’s attitude, FOS said had they had that information they would have found in our favour. FOS held that saying “By altering your funds in this way, if the markets go down you will suffer large losses” was not the same as saying “I do not recommend this course of action”! Insistent clients!
    I think that if you state that something is not recommended and point out why, 99% of clients will follow your advice. If you have ALL the facts and the client wants to use their money in some other way, you can forcefully point out the pitfalls and still action the client’s wishes. Most wealthy clients got that way by doing heir own thing anyway.
    If a client wishes to withdraw £100,000 from their ISA (intended to give income in retirement) for a Buy To Let property are you going to help them or not?
    You have to make decisions on a client by client basis, and insistent clients are few and far apart. As far as I am concerned, you are hung if you do and hung if you don’t as far as the regulators are concerned so take a commercial view of the risks without pre-conceptions.

  11. My comment from 26th Feb, which whilst something I’d said last year light-heartedly looks set to be what we are going to need to do and the only question is where on the scale 1-6 the FOS and PI insurers will position themselves. Once we know, we can decide on what service we deliver.

    Straw poll of where will you and your firm be positioning yourself?

    I was going to be 1-5 transact business,
    looks likely we will need to move to 1-4 or possibly even 1-3 depending on what FOS/PII say we can do and still be insured as without insurance, we cannot advise under FCA rules afterall.

    Stupid Service Client & Customer options advise (client) v order taking (customer);

    Updated 27th March 2015

    1.I advise you to do this

    2.This is one of the options I thought of, but not what I would recommend I will advise on this action and implement it

    3.I would not recommend this, but nor would I advise against, so if you want me to, I will implement it.

    4.I think you are being silly, on your head be it if you insist (do I or do I not implement is the question)

    5. I think it a stupid idea, I advise against. I will not do it even if you insist, you will have to go to a pension “clearing house”.

    6. You are insane, find someone else who is too if you want to do that. Please close the door on your way out and take your box of frogs with you.

    The problem with Pensionwise is that it takes time to be able to get to the last one and Pensionwise will NOT be authorized to do number 6,

    The problem will be either the consumer will proceed doing the wrong thing without advice, or approach an adviser who will either say their fee is insufficient to cover the risk of a complaint appearing at an infinite time in the future OR if they are stupid enough to provide an opinion for insufficient fee (I have heard advisers saying min about £600, common £1,000 for that advice) then have to charge them to tell them no 6!

    As Sam Caunt says, 4,5 and 6 should pay more in to the FSCS to cover the risk of claim.

  12. I start with an apology. I know it’s irritating but I just can’t help myself. I told you so.
    I have said on innumerable occasions over the years that the one word missing from many advisers lexicon is “NO”

    Indeed I have often thought that too few advisers are fastidious when accepting a person as a client.
    The insane in particular are ones where the client should be asked to go forth and multiply.

  13. @Siz
    You got it in one…

  14. At the risk of being a pedant if an IFA decides not to advice on the pension reforms, under the current FCA rules to call yourself an IFA, does this not, by definition, not make you a restricted adviser. Not worried so much here about DB scheme transfers, as I understand this is excluded from the badge of IFA but large DC schemes?

  15. @Marty – You would need to decline to advise the consumer AT ALL.
    i.e. you could not advise on anything to that consumer if you decline to give advice on pensions as an IFA. IMHO

    You can’t advise on investments without advising on pensions if you are an IFA. By not advising on pensions you would be making yourself restricted. AS you say DB transfers is different, but small DC…. if you refused to advise on it and then invested it for them, that would have been insistent client and you are back to why we didn’t advise against it. Options 1,2,3 OK, 4,5 6 PI risk

    Hence why I think we as advisers need to get our heads round the difference between clients and customers and which we want to deal with. I only want clients (someone who wants and needs an ongoing service). I will carry out transactional work for customers who I have dealt with before as a one off, but I will not be taking on any “customer” transactional work for anyone else, it simply is NOT worth the risk to my business and my staff’s livelihood and future.

  16. If you are happy to consider whether pension freedoms / flexi-access drawdown / UPFLS are appropriate for your client, even if after such consideration you say “I am not willing to recommend this”, you have not restricted yourself. If you refuse to even think about advising someone on pension freedoms, then you are restricted. As I understand it.

    I have no idea why anyone who already understood and advised on drawdown and pre-F-day retirement options in general would do that.

  17. @Marty and @ Phil and @Sascha
    You are correct but you are not required to implement anything to be independent. Recommending a client not to do something (and presumably charging a fee for said recommendation) and then declining to act when they insist does not affect your independent status.

  18. @GA I agree. I was saying either you advise them or you don’t. If at the beginning fo the meeting yo have said you will NOT advise on something, you have placed a restriction in the way. If you advise do KYC, advise them to do something and not to do something else, a refusal to execute whether it be something you did not advise (or something you did even, as I am sure we will start to see some firms just advising and leaving the consumer to implement soon) does not make you restricted I agree….

  19. The further on this farce goes the less I’m bothered (apart from one aspect) that we have the “perfect storm” coming down the line.

    Will the politicans of the future care about their predecessors who created the wonderful miselling opportunities….or the new people in power at canary towers (wherever that may be then located). I’m getting to the stage where I don’t really mind if Jo “fool” Public and his money are easily parted if thats what they want, And if some advisers / firms want to crack on regardless, I’ve given up on any sense of moral outrage.

    What does scare the wits out of me though is the size of the compo bill the rest of us will have to pick up.

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