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Tenet: Stop hiding behind the rulebook on insistent clients

Hardly a day goes by without a debate on whether or not advisers should deal with insistent clients.

Those in the “shouldn’t” camp, mainly hide behind two key points:

  • The client’s best interest rule
  • The fact there is nothing in the FCA Handbook which deals with insistent clients

When you take a closer look however, both of the above are red herrings. I will explain why.

The starting point is the high level principles set out by the FCA, including that: “A firm must pay due regard to the interests of its customers and treat them fairly.”

The client’s best interests rule states:

“A firm must act honestly, fairly and professionally in accordance with the best interests of its client. This rule applies in relation to designated investment business carried on: a) for a retail client; and b) in relation to Mifid or equivalent third country business, for any other client.”

It goes on to say:

“The obligation of a firm to act honestly, fairly and professionally in accordance with the best interests of its clients includes both the client’s best interests rule and the duties under the principles of integrity, skill, care and diligence and customers’ interests.”

So long as the customer is placed in an informed position and advisers put customers’ interests ahead of their own, there is actually nothing from a regulatory perspective that prevents a firm dealing with insistent clients.

The argument there is nothing in the FCA Handbook that deals with this scenario also cuts both ways. While there is nothing saying explicitly that you can deal with insistent clients, it also does not say you cannot. Surely, if the regulator wanted to ban advisers from dealing with insistent clients then they would use the rulebook to do so?

In February 2016, the FCA expressly addressed how to deal with insistent clients in three key steps, in its guidance notes on pension reforms and insistent clients.

These are as follows:

  • You must provide advice that is suitable for the individual client, and this advice must be clear to the client. This is the normal advice process
  • You should be clear with the client what the risks of the alternative course of action are. Where the advice includes a pension transfer, conversion or opt-out, there may be additional requirements such as ensuring the advice is provided by or checked by a pension transfer specialist, comparing the defined benefit  scheme with the defined contribution scheme and starting by assuming the transfer is not suitable
  • It should be clear to the client that their actions are against your advice

In these guidance notes, the regulator also states: “Although there are no rules specifically in relation to insistent clients, you must follow the normal advice rules first.”

The question therefore is not whether you can or cannot deal with insistent clients as the answer is clearly that you can. The question is whether or not firms choose to do so, based on their risk appetite and whether they can obtain comfort on managing the risk exposure appropriately.

At Tenet, we have taken the commercial decision that each case should be considered on its own merits and may well be influenced by how well an adviser knows the client and the degree of departure from the recommended advice. The solution may still be suitable but sub-optimal.

To reduce Tenet’s and our firms’ risk exposure, we have elected to pre-assess all insistent client business (about 5 per cent of DB transfers) and we have also taken the commercial decision not to deal with insistent clients where the client cannot demonstrate they can cover their minimum expenditure requirements in retirement. Other firms will set their own criteria.

In this industry, very few things are black and white and this is no different. But let’s stop hiding behind the rulebook and have an honest debate on the real issues and concerns advisers have on dealing with insistent clients.

In reality, this is actually all about how future claims will be handled by the Financial Ombudsman Service.

Mike O’Brien is group regulatory director at Tenet

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Comments

There are 17 comments at the moment, we would love to hear your opinion too.

  1. Duncan Gafney 30th May 2017 at 1:24 pm

    Whilst we are all required to provide clients with advice as to what is in their best interests, we also need to remember that at the end of the day, it is their money and their choice.

    If you have provided the correct advice, if you have pointed out clearly why what the client wants to do is NOT in their best interests and explained that you cannot and will not recommend this course of action. If the client still then wishes to proceed with that chosen course of action, you have no right, responsibility or need to prevent that client from doing that which they wish to.

    In many areas, refusing to do the administration of that course of action constitutes “preventing” them, because many providers will not do certain things on a direct/exe only basis.

    So yes, do it right, but remember that it is that clients money and it is their choice.

  2. Nothing to really argue about here because the last sentence clarifies everything. If you can answer that question you’re home and dry. If you can’t then you’re taking a risk.

  3. Julian Stevens 30th May 2017 at 2:08 pm

    Aren’t the real problems with IC business the tendency of clients to lie at a later date about their understanding of what they were doing (regardless of what they put their signature to) and that of the FOS to side with such clients?

  4. To think when Professor Gower put forward his recommendations One of his final comment

    “strictness of the regulations, should not be greater than is needed adequately to protect investors and this, emphatically, does not mean that it should seek to achieve the impossible task of protecting fools from their own folly. All it should do is to try to prevent people being made fools of. . . One has to make a value judgment on the relative weight to be attached to market freedom and to investor protection”

    On the 8th December 2001 the late, Christopher Fildes in his telegraph column City and Suburban – Telegraph
    For some reason I made a copy of the article

    16 years on I feel his comments are spot on

    “There’s no such thing as a free regulator, and already Sir Howard wants more”

    GUESS what Sir Howard Davies wants for Christmas. That’s right: regulators. Already his dockside tower is home to 2,000 of them, but now that they are a law unto themselves, he wants more.
    This week the Financial Services Authority (Sir Howard is its first chairman) formally acquired powers that transcend the Bill of Rights. It is accountable to no one and has its own exemption from judicial review. Indeed, it has its own judicial system, tastefully accommodated in Lady Ottoline Morrell’s old town house.

    To think that all this began with Professor Jim Gower, who said that there was too much regulation already and saw no case for protecting fools from their own folly. All that regulation should do was to try to stop people being made fools of. He put up a scheme for this.
    Now, two Acts of Parliament later, schemes and regulators and their acronyms have come and gone – Fimbra, I suggested, was a condition of terminal darkness, from the Latin finis, an end, and umbra, a shade – and each one has made the next inevitable.
    There will be an outcry for a new Act and even wider powers, though the nimble Sir Howard will have moved on by then.
    Buyers of financial services will demand compensation when something goes wrong, as it always will.
    They have been led to believe that regulation has been thrown in at no cost to them, for their benefit. If it is free, they will want more of it and expect more from it, just as they would from a National Financial Health Service.

    No wonder we have a culture of hiding behind the rule book

  5. It isn’t the FCA that is the problem.. Its the FOS as they are law unto themselves and take no prisoners. Its a bit like a GP being asked to prescribe a medication against his better judgement It still falls back on him when the patient suffers as a result when the GMC (FOS) states in court that he should have known better than to validate such a course of action…

  6. Terry Mullender 30th May 2017 at 4:41 pm

    If you believe that a pension transfer is not suitable for your client, and your advice recommendation is that they don’t transfer, how can you then be

    “acting honestly, fairly and professionally in accordance with the best interests of its client”

    when you clearly believe implementing a pension transfer is not in the client’s best interests?

    • Duncan Gafney 1st June 2017 at 7:44 am

      Because it is the clients money. You seem to be confused between “advice” and dictation. If the client ignores your advice, that is their choice, but what you are suggesting, as many are is not advice. It is dictating to a client what they can or cannot do with their own money.

  7. As already stated, the last sentence is the issue, the rest is irrelevant. Until we have assurance from the FOS of what is and is not acceptable, why would any adviser transact?

    • Julian Stevens 30th May 2017 at 9:01 pm

      Quite. There have been numerous instances where the FOS has disregarded signed disclaimers of liability on the basis that, if the transaction was contrary to the client’s (likely) best interests, the adviser shouldn’t have facilitated it and that by having done so s/he is indeed liable. If you give advice against doing something but the client wants to do it anyway, just walk away.

  8. A simple solution would be to remove regulatory protection for insistent clients, as with Certified High Net worth and Professional Investors,with no recourse to FOS available. I am sure that would be acceptable to all parties, but could establish a loophole for the less scrupulous advisers.

    • Julian Stevens 31st May 2017 at 4:43 pm

      Acceptable to all parties? We can be pretty certain it wouldn’t be acceptable to those within the FCA determined to skewer financial advisers at every opportunity and deny us any longstop against the system being able to do so for ever and a day.

      But, as you say, loopholes are most likely to be exploited by the unscrupulous and some clients could be tricked into signing away their statutory rights. Then, some may claim they were tricked when in fact they weren’t at all. Life is never simple.

  9. So do we stick or twist?

    The article starts by saying that we should not fear dealing with insistent clients as long as all of our paper ducks are in a row and then ends with the one big uncertainty, which is the barrier to transacting such business in the first place, namely how the FOS will deal with ‘future’ complaints in this area.

  10. Trevor Harrington 31st May 2017 at 9:20 am

    It is interesting that, in his article Mike suggests that we should not hide behind the technicalities of the rule book …. and then does precisely that.

    Never mind the rule book … if it is not right then it is not right …
    Just don’t do it …

    Your own morals and professionalism should be more than enough to lead you to the correct conclusion.

    Sadly this is not the case … as amply illustrated by the fact that we have a rule book in the first place.

    Even more sadly, there will always be Advisers who will want to scrutinise the rule book, looking for the slightest loop hole, in order to justify doing some business which they know full well that they should NOT be doing in the first place.

    Same on you all ….
    Idiots of lowest social order …
    Scratting around in the sewers … trying to find some sort of justification for ripping off your clients …

    And then you are going to say ….. Oh, but your honour … the client told me to do it …
    Absolutely …. pathetic !

    • Duncan Gafney 1st June 2017 at 7:47 am

      Well in that case, you are not an “adviser”, you are a dictator. Or had you forgotten that it’s the clients money and therefore it’s their choice what they do.

      Your job is to give the client the correct advice. It is not to dictate to them what they can/cannot do.

      As for your other comments, I can only assume you believe your a liberal, given that you think that insulting people will persuade them you are correct?

      • Julian Stevens 1st June 2017 at 10:23 am

        I agree that clients should be allowed to do what they want with their own money. But that’s not the issue under discussion here. The issue is the potential liability on advisers of enabling clients to do what, in our professional judgement, looks like a bad course of action because, if that course of action turns out badly, there’s a high risk that they’ll look for somebody else to blame and the FOS has a history of disregarding signed statements absolving the adviser of liability. The FOS mindset is that if it was the wrong thing to do, the adviser shouldn’t have facilitated it and is therefore liable for a bad outcome.

        Unless and until the FOS can be relied upon to accept a signed waiver of liability as a valid defence against a complaint from an insistent client and rejects claims about not having understood what s/he was signing (If you didn’t understand it you shouldn’t have signed it ~ caveat emptor), I don’t see why any adviser would be willing to deal with an insistent client. In fact, with only the rarest of exceptions, I’m extremely reluctant to deal with Exec. Only clients. I’m an adviser, not an order taker.

  11. Trevor Harrington 1st June 2017 at 12:00 pm

    @ Duncan
    I am an Adviser, and an investment manager, with 36 years experience, having been MD of one business in the 1980s with over 100 Advisers, and subsequently created a business with 12 Advisers – I have never had a complaint.

    Whatever your client wants to do with his or her money, as you rightly say, is up to them – However, you are not obliged to create or administer that transaction if you do not want to – you can walk away from it.

    Silly boy!

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