Peter Herd: The trouble with insistent clients

Pensions-savings-retirement-piggy bank

I run a small IFA practice and, like many consultants, I receive quite a few phone calls around the subject of transferring defined benefit schemes to Sipps. This could well be another misselling scandal and puts advisers like us in a difficult position.

The insistent clients dilemma boils down to who is liable not only for the advice on the transfer but also the advice on the investments. When we look at the funding of the FSCS levy we see the liability for the advice primarily comes back to the adviser, even when using discretionary management services or when clients want to manage their own funds.

But what of the insistent client process? I can sympathise with people wanting to transfer because the amount of paperwork we are forced to provide is ridiculous. When dealing with an insistent client it is right a full recommendation on what we believe to be the most suitable course of action is typed up.

If the client genuinely disagrees with this recommendation and is prepared to sign a document that explains the reasons why, this document should provide protection to the adviser in the event of future FOS claims.

At present I suspect that only 1 per cent of my business is written on an insistent client basis and I do not write business at all where I am not responsible for the investment advice. With more and more clients feeling that they know what is right because of articles they have read in newspapers, online or even from poorly informed government ministers, this does have the potential to be a huge problem and is certainly something that the profession needs to guard against.

A lesson of Harlequin is that advice standards were in effect broken as advisers were not giving recommendations of a suitable course of action. Instead they used insistent client procedures to set up a Sipp when they knew the money was going into a questionable investment. This causes a number of concerns when looking at pension freedom as it is going to have to be the duty of the IFA community to have a greater understanding of a client’s aims and goals.

This is particularly true when clients are looking to manage their own investments within pensions or when a client chooses to take money out of a pension to invest in unregulated investments like buy-to-lets. Ultimately it is the adviser and not the client who will be held liable if things go wrong.

In reality many advisers will choose not to conduct this type of business at all, fearing the potential liabilities could ultimately sink their practice. What is becoming apparent is that advisers are having to learn to say no to clients, even if the client is insistent.

What is urgently needed is a change in the FCA’s stance that a client cannot take reasonable responsibility for their own actions and a level of reasonable doubt introduced in interpreting advice standards.

Peter Herd is managing director of Essential IFA