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Neil Liversidge: Caveat emptor and insistent clients

Neil Liversidge

The Financial Ombudsman Service seems to have reduced the insistent client debate to a selective and capricious interpretation of the “client’s best interest” rule. That is useful for the FOS, of course. It enables it to oil the wheel that squeaks the loudest by ordering placatory handouts at advisers’ expense. The FCA is also a beneficiary. It sooths those who would otherwise complain about failed regulation. Likewise, politicians benefit in their turn by not having to face disgruntled investors at their constituency surgeries. The result for advisers will be increased professional indemnity insurance premiums and excesses combined with yet more exclusions. PII will be made ever more useless, leading to more failed firms. Higher Financial Services Compensation Scheme levies will then follow as it dispenses its own largesse.

Free societies allow their citizens to act in ways that others may regard as unwise. At one end of the scale we are free to eat, drink and smoke too much, have unprotected sex and fly microlight aircraft. At the other end, the same freedom allows the likes of Ultimo founder Baroness Michelle Mone to ignore the advice of those who told her a dyslexic working class Glasgow girl stood no chance of dragging herself and her family out of poverty by creating a lingerie empire. Wing Commander Andy Green has probably had to ignore equally well-meant advice in his mission to drive a rocket powered car at one thousand miles per hour.

The freedom to choose to ignore advice extends into financial matters. The Government exhorts us to save and gives us incentives to do so but we can still opt-out of automatic enrolment and blow our savings on a world tour if we choose instead. Nobody can compel us to take their advice to the contrary no matter how sure they are of its rightness.

Defendants go through the courts on a daily basis pleading contrary to their legal advice and suffer accordingly, but there is rightly no sanction against the lawyer who, acting on his instructions, presents a hopeless defence to the best of his ability. An accountant may tell his client that his business exporting Blackpool sand to Saudi Arabs is mad, misconceived and doomed to fail, and that he should cut his losses and quit, but if his advice goes unheeded he will suffer no penalty for continuing to do his client’s books until the day the liquidators march in.

The insistent client has been around for as long as advice of any kind has been a purchasable commodity. No other profession to my knowledge, however, suffers to any great degree from the exercising by its clients of their freedom to choose to ignore, in whole or in part, the advice they are given. Only the financial adviser and the advice he or she gives is treated differently.

The FCA, FOS and FSCS need reminding that the “S” in Sipp stands for “self”. If a client demands an adviser limits his or her advice to finding a suitable Sipp that will thereafter allow him or her to select his own investments, however crazy any of us might think them to be, that is the client’s prerogative. If the regulator disagrees, then it needs to look to the list of permitted investments and compliance by Sipp providers.

Neil Liversidge is managing director of West Riding Personal Financial Solutions



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There are 15 comments at the moment, we would love to hear your opinion too.

  1. Well done Neil. Unfortunately I can’t see things changing… and backdoor, stable-door closed comment and judgements will continue to be the order of the day and a cost provision somehow the industry has to factor into its equations.

    The published case against SJP this week with Ray Milne at the FOS…. I have no time for SJP and its opaque, very expensive charging model albeit very successful business-wise but the ‘logic’ engaged in the judgement is seriously flawed. Effectively we can all be open to full file review, for an indeterminate period, based upon the actual outcomes which may have arisen and hindsight judgement.

    Having to make provision for inequitable behaviour at the FOS doesn’t make it right but it is inevitable regrettably.

    Here’s a thought – our risk profiling tools allow some scope for considering the psychological make-up of the prospective client – the ‘risk’ rating also has consideration as to the likelihood of the client to ‘complain’ about anything, despite doing our best for them. We all know the types… or do we – and sometimes trying to do our very best to help all comers (especially those with sad tales from before) is our own downfall?

  2. Totally agree Neil, well put.

  3. Good article – well said.

    We have several clients at the moment who are reacting to the Referendum by wanting to go into gold, cash, specific funds that will benefit from in/out etc, all because they are convinced they know what is the right thing to do at this time or are seeking a “safe haven”. We don’t do insistent client business as a rule, but we do feel that we need to cater to people’s (rightly) strong feelings at this time, so we are doing what we can (within the bounds of sanity), but having to dust off caveat emptor. Hope it doesn’t bite us in the ar5e later a la Pension Freedom (“give me all my money and if you don’t, I’ll complain. Later, when I have no money, I’ll complain that you shouldn’t have let me”).

    To add to Neil’s analogies, patients are free to leave hospital and ignore medical advice. It does seem that we operate in a skewed business. I especially like the reference to AE – people can opt out as they choose, which is surely “being insistent”.

  4. Freedom ? (just ponder that word for a moment)

    It true Neil, I believe we had it, but in today’s Britain I has been somewhat diluted and dismissed, (and its not just exclusive to the regulator and its offshoots) all to often, and with regularity, we are told what we cant do, and what we must do.

    Parking…… just a way for the local authority to extort money (you cant park here you must pay to park there), rubbish collection…. most if not all houses have 3 bloody bins and we have to sort out rubbish into separate piles or some jobs worth will not take it away or get fined, transport car, bus, train, or plane,…. (don’t even get me started on these, starting a business,…. well the red tape alone, Employment law , pensions and health and safety (to name a few) stops most in their tracks before you even start.

    Farming, fishing, all restricted on how much, or what, and what you cant catch or grow !

    Then we get the good ole FCA…. a man can quickly loose the will to live !

    I know that some of these are little things, but its the little things that irritate the most !

    As for the insistent client, IMHO view its a unicorn, a ghost, a myth if you will, (and i don,t believe in such) there has to be a very valid reason why a person wants to take a particular action, once that is known, it becomes no longer insistent, never how much “WE” think they are wrong or WE disagree, Write it down, tape it, chisel it it to marble if you wish, facts are facts soft or hard……. if they refuse to disclose the reason or its illegal, politely and softly close the door on them as they walk out your office that is your “freedom” and hold on to it as tight as you can.

    Freedom….? we used to have it in abundance but now it comes with a catch, restrictions, and a payment !

  5. A good article, Neil. The bottom line though is the FOS’s standard stances seems to have become that waivers of liability on an intermediary signed by an insistent client count for nothing and even EO seems to have become risky for any but exclusively EO firms. IC and EO business have just become too risky to touch, though there’s logic in the question: Why, as an adviser, would you act as facilitator for a course of action that doesn’t look right?

    I’m surprised at how many firms still don’t charge for advice, instead maintaining a primarily transaction/sales driven business model. I gave that up 15 years ago and I’ve never looked back.

  6. Neil
    There have been times when we have been in agreement and I have been genuinely pleased about that. However this is not one such occasion. In my view you and your supporters are so wildly off beam that I have had to retrieve my eyebrows from the ceiling.

    Insistent clients?? Presumably this is the sort of client that comes to you for advice and then doesn’t wish to take it. In other words an idiot. These people should be shown the door without further delay (after of course having paid your bill for the advice). If they then want to do the stupid thing let them try to do this directly without involving an intermediary.

    I see this agonising arising because advisers are unwilling or unable to say ‘NO’. This may well be that instead of running an advisory practice they are still running a transactional model; and can’t bear to see a piece of lucrative income go out the door. Even if this is an exponential risk to the practice.

    Learn to say no and avoid taking on idiot clients. It may even be that this is an existing client – so divorce them. It isn’t unheard of for an adviser to sack a client. Your business doesn’t need this kind of risk.

  7. Neil Liversidge 16th June 2016 at 10:59 am

    Okay Harry, I’ll give you a specific instance and let the readers / bloggers be the judge. A few years back I took a call from a would-be client who opened the conversation thus: I want an IFA who can source an economic SIPP which can hold physical gold. I don’t want any other advice and I’m not paying for any other advice. I don’t want any ongoing advice or recurring fees. I just want you to find me a SIPP, transfer my existing old plans in, and then I’ll handle the buying of the gold” adding “I know more about investing than any adviser and want to manage my own money.” Actually, what he said was a bit less polite but that’s the gist of it. This guy had just listened to Merryn Somerset Webb on Moneybox banging the gold bugs drum. For free we told him it was a bad idea to put all his money into any single asset type. For free I gave him graphs on the gold price going back 600 – yes that’s right – 600 years, converted for inflation and $/£. For free I explained that gold produces no income and has a storage cost. He still wanted a SIPP finding and the transfers executing. So we found him a suitable SIPP and executed the transfers for a pre-agreed fixed fee. I’m sure you’ll say we were wrong Harry. I don’t believe we were. I thought and said that in my opinion he was making a bad decision and history has so far proven me right as the gold price has slumped, but at the end of the day, it’s his money. He went ahead with his eyes open. Gold is a permitted investment. We facilitated what he wanted – self-investment for a self-proclaimed expert who’d made his own mind up. If you think this was wrong Harry then I suggest you start a personal campaign to ban SIPPs. We now have a situation where the government – rightly in my view – allows people to make their own decisions but then quite wrongly through pure political cowardice allows the FOS and FSCS to institute moral hazard by making such decisions – for clients but not advisors, obviously – a no-lose bet. Are you going to campaign for that Harry? No? I didn’t think so.

  8. Philip Spierling 16th June 2016 at 1:25 pm

    I have been enjoying all your recent articles Neil,

    keep it up please , your comments and observations are fantastic, i just wish I could put it as eloquently as you do.

  9. I don’t need a campaign to ban SIPPS – I advised on many. I don’t need to campaign on this topic to the FOS and FSCS.

    Quite simply if the initial telephone enquiry was to me, the phone would have been put down within five minutes (if that long). I just cannot comprehend why you didn’t do likewise.

  10. Neil Liversidge 16th June 2016 at 4:03 pm

    Because, Harry, the guy had a legitimate wish to be able to do what the law permits him to do and I am not Big Brother or an agent of the nanny state which the FCA and FOS are clearly on a mission to establish. If any apparatchik thinks I should be then I look forward to receiving a full job spec along with T&Cs saying how much I’ll be paid if I accept the job. Just out of interest of course. I would not accept such a role because I am a libertarian. The FCA and FOS need to acquaint themselves with the meaning of the word, obviously.

  11. Well Neil you ma be a crusader, but I’m not when it comes to risking my business. Anyway I an well aware that these ‘freedoms’ are nonsense. Far less to do with individual choice than grabbing more tax.

    Anyway from your post it would seem that the client in this case wasn’t wanting to trash his cash, but to put his money into physical gold, which he can now only achieve via the BoE. Up till now all he could get was an ETF or a mining share. A little less stupid than trashing the cash, but nothing to do with ‘freedom’. And why you should have entertained such a seemingly rude potential client is also strange.

  12. I couldn’t agree with you more Neil.

  13. I have to say I’m with Harry there is enough risk in giving advice without acquiring more through capitulation. I don’t take on these clients unless as an expert against those who “want to help” then find themselves with a claim

  14. Neil Liversidge 17th June 2016 at 8:59 pm

    We got him the IPS SIPP where he could buy ETCs should he so wish. I looked back through the file today and I’ll stand by what we did to the death. Why don’t we just call a spade a spade? The problem isn’t advisers who genuinely sort out a client with an economic SIPP that allows a confident client to self invest. The problem is crooked advisers who are getting backhanders from other crooks pushing dodgy overseas property and the like. The way it works is the adviser is approached by the property pusher who says he needs an IFA to organise the transfer on an execution only basis. The ‘IFA’ knows where the money is ultimately going but he gets his fee from the client and no doubt a backhander from the pusher. I bowled such a crowd out years ago. They need stopping but it’s going to be an extremely difficult exercise because it effectively means trying to regulate unregulated pseudo estate agents. If there is a solution it lies in the rules about what SIPPs can invest in and more due diligence by SIPP providers. I said this at a conference in London 3 or 4 years back but nothing has been done to improve it. So the FOS applies the blunt instrument of finding against the advisor and ultimately the FSCS ends up paying, which means we all do. I’ll stop now before I depress myself.

  15. Julian Stevens 20th June 2016 at 1:21 pm

    I’m inclined to lean towards Neil’s point of view though in this day and age would you, as an adviser, dare to do ANYTHING on an Insistent Client, Non-Advised or even Exec. Only basis?

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