Richard Leeson: FCA has let us down on insistent client rules


The pension freedoms promised by Chancellor George Osborne have arrived. With them have come a whole host of issues and dilemmas for advisers. Insistent transfer requests seem to be top of the list. Personal Finance Society chief executive Keith Richards even took the unusual step of writing to the FCA and the Government to highlight the dangers our industry faces.

People keen to access their pension pot but who are in a defined benefit scheme are already seeking to transfer to a defined contribution scheme in order to benefit from the new pension freedoms. There is a real danger this will be against their bost interests and so they are required to seek advice. So far so good. The advice may well be that they should stay where they are and not transfer but they are quite entitled to ignore it. This is where the problems start to build up.

A person who has been warned not to proceed with a transfer can approach a provider and press the buttons to go ahead anyway. I have to ask myself why this is permitted. Surely if we trust our advice community in the post-RDR, non-commission-biased advice world then why would we allow an individual to go against that advice?

We are where we are, as they say. So we now have the situation where an adviser is faced with an ethical and professional dilemma: how to deal with an insistent transfer client. Having given the advice not to transfer, an adviser might be asked by the client to provide an administration service to facilitate the transfer. How should the adviser respond? There is an ethical question about helping a client to go against the advice that has already been given. That aside, there is the practical question of liability for the adviser if they do go ahead. From past experience, we know both FOS and FCA will be unsupportive of advisers if the client subsequently complains. I have spoken to some who have asked about disclaimer letters and whether their use would protect them from liability. My response has been to point out that a client who has no financial services qualifications is almost certainly unable to sign a disclaimer that says they knew what they were doing.

More importantly, the adviser would be expected to know that the client was not qualified to sign that letter. We saw similar situations with “experienced investor” disclaimers on sales of unregulated collective investment schemes. If the insistent transfer request comes from a valued client then the advice firm could find a loss of ongoing adviser charging if the client feels let down and moves their business away.

So let us assume the adviser decides to step back completely and disavow future involvement having advised the person not to transfer. Off they trot to the provider where they are welcomed with open arms. This surely places at least a moral responsibility on the provider to ask what advice the client received. Will providers turn potential transfers away? If not, they are unlikely to face complaints in the future since they have not been the ones giving advice. After five years of austerity and pulling the belt in, there will be more than a few people looking to access their pension savings. Many might be left with poorer retirements as a consequence.

Pension freedoms, then, create a situation where an investor can insist on doing the wrong thing, on acting against their own self-interest. Advisers must do what is right for the client and potentially lose money; providers can accept a client when perhaps they should not, though they then make money.

The adviser forums are filled with posts on this issue. Some argue the providers should not accept these insistent transfers; some argue the adviser should be able to deal with such clients using a disclaimer. The industry has debated simplified advice models and other solutions. Surely there is a more fundamental concern: why is our regulator allowing this to happen at all? How can we allow people to ignore professional advice warnings and run headlong towards a financial cliff? The FCA continually warns it is worried about poor outcomes for investors. Surely it should be far more vocal in its opposition to what may be the biggest cause of them for a generation?

Richard Leeson is chief executive officer of Adviser Advocate 


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There are 14 comments at the moment, we would love to hear your opinion too.

  1. Lots of providers are actually refusing to allow these to happen. We have been approached by a number of clients who have asked for their pension fund (direct from the provider) and have subsequently come to us because they have been told “not without advice from a financial adviser”.

  2. Legislation has given the people freedom to access pension funds. Yes there are tax & providing an income for life issues. BUT it is the clients money. Whether as advisers we think it is the correct choice for the client, we under TCF surely must assist with the administration to ensure the receive it without hassle. They were advised to save, now they have access & being told they cannot spend! sounds worst than an annuity! Ethically the adviser community must help but cannot be heard responsible for someone wanting to spend their savings. So some disclaimer has to be acceptable to protect the adviser.

  3. IMO this argument simply focusses on the ‘financial consequence’ of the DB transfer whereas, in reality, many clients aims and objectives are not financially based… and therefore whilst the advice, on a financial basis, may well be not to transfer (e.g. the ‘critical yield’ is higher than the risk profile suggests is feasible) the reality is that, factoring in external factors such as income control, death benefits, a need to access cash in a hurry (e.g. a medical emergency) etc etc the advice may well be to transfer even though, financially, it’s detrimental.

    Generically, it’s fairly easy to say that only a minority of people should transfer a DB scheme but in reality, once those ‘soft facts’ come into play, the fact of the matter may well be that, in similar circumstances, I may well choose to do precisely the same even though the numbers suggest it’s foolhardy.

    Perhaps the question is… in this world of ‘holistic advice’ and ‘financial planning where we don’t sell a product’ how precisely does the ‘softer facts’ impact on the ‘hard facts’ of the Critical yield etc and at what point would a ‘no’ become a ‘yes’ …. my view on this is that were now moralising on what is important enough to a client to justify the loss of DB benefits and this, surely, is only something the client can decide?

  4. Will PI insurers even cover “insistent” client business in this area? If not then it is “end of”!

  5. @Paul – and of course the problem with “soft” issues is that so many may be subjective and open to re-interpretation in future years.

    @Jabba – PI insurers are likely to a) be very cautious – b) see how things develop – I’d bet that as soon as the first decisions come through FOS denouncing a few “insistent” transactions, cover will dry up overnight. Then what a lovely back book of business to have potentially festering in your cupboard.

    Oh joy!

  6. There are many scams and fraudsters out there at this time, which the regulator seems unable to prevent before consumer harm has already happened. Surely it would be favorable to allow insistent client transfer arrangements by a regulated individual into a regulated product to prevent such hardship, with the use of a signed declaimer.

    Disclaimer that states you are giving up guaranteed income for life, could/will run out of money, you will not have any income, you are making yourself worse off in the long run because this that and the other should be sufficient. Stated clearly and simply how can this be complicated to understand?

    To then say the client did not understand, could not understand as they are not qualified is an insult to the British consumer. How simple does it have to be! What is hard to understand about these statements. all this proves is either the system is very wrong, controlled by a nanny state admitting it has failed to educate, or that the UK public are so stupid they should not be allowed to drive a car, have a knife and fork or have their own bank account.

    To me this is simply the powers that be wishing to make sure they have their get out of jail card free as usual. So the consumer can as in the past have the penny and the bun when scammed by anyone who the regulator is powerless but does not want to be seen or held accountable for their actions.

    It places advisers with the only option of saying they will not transact any against advice business, which sends the client into the open and willing arms of the scam artists and fraudsters. We should congratulate the FOS, FCA and FSCS for their fantastic work as they will come out of this as usual as clean as newly fallen snow. The fact its actually going to be their fault, their unwillingness to act and take responsibility seems to be unseen by so many.

  7. Douglas Baillie 22nd April 2015 at 5:44 pm

    If a solicitor is acting for a client on a property matter, and warns against a purchase for legal reasons and the client then ‘instructs’ the solicitor to proceed, then that is NOT the liability of the solicitor of it all goes wrong.
    In any event, if a person signs a legal document, then in common law they are bound by it, and the consequences of it, including any associated losses.
    The FOS guidelines make it clear that their judgement is based on common law, and they cannot simply side step it just because they want to. By being ‘legally selective’ makes a mockery of the FOS independence.
    Surely it cannot now be long before a group of Advisers and their PI INSURERS take the FCA and the FOS to court where an independent judge will decide the proper outcomes?
    In any event, PI Insurers and their underwriters are already working on amendments to their policiy conditions to exclude cover for ‘insistent clients’ and adding massive excesses as well
    And bearing in mind that PI policies are offered on an ‘arising claims’ basis, it is very likely that affordable PI will simply dry up and the Investors Compensation Fund will be left with liabilities where the remaining advisers will be unable to afford the subsequent levies..
    So maybe the Regularors will finally have their way and simply over regulate advisers out of existence. Then what?

  8. it is nice to see some of these comments, starting to come through. We see lots of instances where the soft facts are clearly showing consumers have other needs for the money in their savings pot that they may consider more important than providing income. I haven’t seen any where we thought it unreasonable to assist them yet. I would like to see the debate change from ‘insistent’ customers to why it is important that we put the clients first and stop worrying about some fictitious liability.

    The reason why FOS have upheld insistent customer/Execution-only cases in the past- that I have seen, was because they weren’t either of these and it was clear that this was advisor driven/very poor process, not where the customer understood that they had been insistent. Are we confusing a real-fear or just mixing up other reasons for upholding complaints.

    There are plenty of dodgy scammers out there who will try and wheedle hard earned money from non-informed individuals. We aren’t one of those, so we want to see a better understanding of when it is right to help a customer achieve a shorter term aim over a longer term one- this is just being avoided at the moment. I believe that it is perfectly reasonable for a consumer to place importance on business needs, property purchase, helping children, health issues and even some enjoyment in life having worked full-time for 40 years. Our challenge is to do this well and help clients balance up their longer term needs with their shorter term needs effectively.

    Clearly a pension tax wrapper is now like any savings vehicle and is no longer tied to meeting a retirement income need ALONE.

  9. Just as I said ~ a Pandora’s box of woes. It’s all very well to suggest that clients should be allowed to do what they like with their own money but for an adviser to facilitate doing what he almost certainly knows is the wrong thing is like pointing a loaded gun at your own head.

    If you facilitate a wrong course of action then YOU will be held responsible for consequences and the FOS will show no mercy when, a few years down the line, the client makes a complaint that you should have talked him out of it because you knew it was the wrong thing for him to do but you allowed him to do it anyway. All the warnings and disclaimers in the world will not protect you from the predations of a client (enthusiastically egged on by a rapacious CMC) who’ll be looking for someone to blame and someone to pay for the consequences of his own short-sighted foolishness.

  10. As many commentators have mentioned, these ” insistent customers ” are not likely to be our existing clients, who would normally accept our advice. So if we turn them away, they can complain until they are blue in the face.

    In law I am only liable for tangible losses incurred as a result of negligent advice or administration, this does not cover refusing to act because of the risk to my business.

    Like many other advisers, I have people coming to me with almost out of date transfer values because they have tried to go direct to a provider, then they do not want to pay for a transfer report if it is a negative recommendation.

    We did not cause the problem, we do not make the rules, if expediency is required to settle political aspirations then pass a special bill to provide immunity for anyone who feels that they have to facilitate an insistent transfer, or as Phil Castle and I have said, set up a central clearing system for non advised consumers.

  11. Excellent article Richard, will be interested to see the Regulators response??

  12. I know it is against the spirit of regulation, but surely only the guy who lays the minefield has the schematic to get safely across. How hard would it be for the FCA (in their unrivalled wisdom and vision in all things financial) to establish where the parties’ responsibilities lie which makes the consumer at least partially accountable for their own actions.

    Let’s not forget that time, regulation and circumstances will affect whether advice was good in retrospect. 80% of DB schemes are heavily underfunded now and if gilt yields increase this will get worse as capital values fall. TVs will fall as a combination of increasing yields and underfunding bite.

    So, with TVs high in historical terms now, who is to say that in a few years, a married client becomes a widow(er), examines the option of a TV then, compares it to the TV when we advised against a transfer and, guess what…… duck …. incoming complaint.

    We are damned if we advise no and damned if we say yes.

  13. @ Justin
    Your advice is relevant to the specific circumstances and objectives at the time and these must be clearly documented. If he is married and one of the objectives is that he wishes to protect his wife and family by securing guaranteed/ inflation proofed income then why would you not feature this as part of the advice but also state that if these circumstances change in the future then “x,y,and z”……

    If the advice is appropriate to meet the clients stated objectives and the outcome is right for them then I cannot see that the FCA/ FOS will be able to attack you for them.

    The key importance here is to really “know your client” and avoid transactional business which could come back to bite you in the future.


  14. Richards query as to why the Regulator is allowing the current confusion to carry on might go some way to being answered by taking a step back from industry considerations and looking at the overall structure of government into which the FCA fits.

    As it currently Parliament sets the legislative framework and holds the government to account for the regulatory framework that stems from this. It also notionally holds the regulatory bodies to account for the performance of their functions, as we have seen through the TSC, and appearances by Mr Wheatley et al before committees in the House.

    Given that current Parliaments are not allowed to ‘bind future parliaments’, laws and regulations that are put in place today are very carefully crafted to allow what we might call ‘wiggle room’ in future in case the government has made a mistake that need to be corrected, or future events require further legislation.

    ‘The Blunders of our Government’ written by academics King & Crewe has a chapter on the pensions mis-selling ‘scandal’ and subsequent Pensions Review. While they state that the initial decision to allow people to transfer out of ‘relatively safe’ final salary type schemes (in particular public servants like police, NHS and teachers) with the offer of additional SERPs payments into their personal pension was deeply flawed on a number of levels their conclusion was that the majority of the damage was attributable to ‘advisers who aggressively mis-sold personal pensions’. Whether you agree with that conclusion or not there is perhaps a lesson there for the advice profession.

    This government has allowed many people the freedom to cash in their pension savings. In some cases it will be justifiable or just plain necessary in individual human terms, but fifteen years down the line when todays 55 year olds are 70 and facing retirement with only the state pension to live off and they start clamouring for someone to do something about that, todays FCA vagueness (and the lack of longstop) may provide future governments with options.

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