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Peter Herd: The trouble with insistent clients

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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



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There are 6 comments at the moment, we would love to hear your opinion too.

  1. Peter,

    I was under the impression from reading other similar articles and opinion columns that simply having an “insistent client” sign a declaration was not protection against a claim? Is this incorrect?


  2. Adam Baker

    No your impression is correct, my point is that the advice profession is having to adhere to very strict advice rules which are designed to protect consumers. However when faced with a client that goes against an adviser’s recommendation and are insistent that they wish to take another action, the present rules do not offer the adviser with any protection. So it is ok for the online providers and newspapers who are giving information to clients on what can be done with pensions but in reality when advisers are faced with these clients who are wanting to take these actions are actively having to talk clients out of irresponsible actions.

    What is clearly needed is clarification from the regulator on insistent client rules.

  3. @Peter – you may wish to read the FCA update on this particular matter. The likes of Harlequin or Cape Verde or fractional ownership in st lucia etc etc were more often based on advisors providing advice on the pension transaction but not the investment element. The PI insurers take on this matter will always be key as always.

  4. Customer comes for advice. You advise. Customer pays for advice. Customer wants to do something different from advice.

    Tell me why your involvement isn’t over there and then?

  5. Adam Smith ~ Quite. And we know the FOS commonly disregards disclaimers signed by the client who will later put forward various false claims that he didn’t understand what he was signing, that the adviser just waved it under his nose without giving him a chance to read it, etc, etc. Hence we (and the government) are seeing a logjam of clients who want to do unwise things such as cashing in their pension fund, assuming that all that’s involved is the signing of a few forms. The deck is loaded against the adviser and the FCA and FOS hold all the cards.

    Unless and until a signed disclaimer affords advisers a reliable defence against the consequences of the client insisting on following a course of action contrary to the advice provided, who can be surprised that most advisers want nothing to do with insistent clients?

  6. Julian that was my point and nicely put.

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