Are You An Insistent Client?
If you take financial advice and your financial adviser advises you not to invest in a particular product or advises you not to transfer your final salary pension scheme to an investment linked pension scheme such as a personal pension or a SIPP (self-invested personal pension) and you wish to ignore the advice and proceed with the transaction you are deemed an insistent investor.
Much has been written and debated within the financial services industry about insistent clients. More recently, even the Financial Ombudsman Service (FOS) has suggested that they would rule against a financial adviser if they had processed a transaction where the investing client did not have knowledge that was at least equivalent to the financial adviser’s as clients cannot be reasonably expected to understand the consequences of their actions.
We have been involved in this debate and suggested that this puts the financial services industry in turmoil as you cannot expect any client to have high-level, degree equivalent pensions and investment qualifications and as such financial advisers are being left wide open to compensation claims despite the fact that they had advised clients not to continue with the course of action.
We appreciate that despite the downside of for example: transferring a final salary pension scheme to an investment linked pension scheme, some clients still wish to do this to access their lump sum or make use of the new flexible drawdown rules and are happy to lose their guaranteed 'safeguarded' pension rights.
Finally, the financial services industry regulator, the Financial Conduct Authority (FCA) has issued guidance and effectively given the go-ahead for insistent investor transactions. That said, to protect consumers from unscrupulous financial advisers, pensions and investment companies, the FCA has stipulated a number of rules for both the financial adviser and the client to follow in such circumstances:
- Insistent investors cannot simply sign a form to confirm they wish to proceed with an action even though your financial adviser has suggested it is not in your best interests.
- Full financial advice must be given in the usual format where any advice and any transactions are both suitable and affordable for a client. This is the normal financial advice process.
- It must be made absolutely clear to you, the client, that any actions or transactions that you insist on taking are our against the advice offered.
- The financial adviser must issue a full written report as normal covering all the needs and requirements, suitability and affordability issues, but also must explain in a clear and understandable format all of the downside risks i.e. the good the bad and the ugly of the actions that you, as their client, are insisting on.
We are delighted that the FCA has issued this guidance to the industry and we are now happy to offer an insistent client service which is becoming increasingly more popular given that so many clients approach us asking to transfer their low-risk final salary and defined benefit pension schemes to higher risk flexible pension drawdown schemes.
Sadly though, given the requirement to follow the normal full advice process plus additional works to explain fully all of the downside risks, normal advice fees will apply even if a client approaches as and tells us exactly what they want to do, which company they wish to use and what funds they wish to invest in. Despite the FCA guidance, the Financial Ombudsman Service has not yet commented on how they will deal with complaints where an insistent client transaction has taken place.