I am often asked when I go to seminars about the insistent clients – should you transact the business for an insistent client or not? On the one hand, there are the client best interest rules so if you truly feel that doing the transfer, for example, is not in the client’s best interests then you should not do the transaction. However, there is no rule that says that an adviser can’t transact the business if the client insists on it and there may be times when the insistent client route would be appropriate. Last year the FCA published a Fact Sheet (number 35) on the matter. This confirms that they see there are three steps to follow:-
- 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.
- It should be clear to the client that their actions are against your advice.
- You should be clear with the client what the risks of the alternative course of action are.
The guidance is clear that advisers can’t just focus on what the client wants to do – consideration has to be given on the client’s wider circumstances. For example, if the client’s primary objectives are to release funds to pay off debt, what other options are available to the client that they should consider? This is so they are in an informed position so they can make an informed decision.
Examples of what we believe to be poor practice regarding the documentation of the advice process are:-
- Documents prepared by the firm which sets out why the client wants to transfer for the client to sign (i.e. as if the document was written by the client when it clearly wasn’t)
- Reports say that the client was insistent upon the transfer but the evidence of this was weak. It was not clear that the client actually knew what they were doing.
- Letter saying not to transfer, client pre-prepared documents and report agreeing to go ahead with the transfer are all dated on the same day
- It is obvious that it is just a paper exercise
Good practice examples are:-
- The client confirms in their own handwriting that they understand why the adviser is saying that they should not transfer but wants to go ahead because of XYZ.
- There is a time delay between the report being sent to the client saying do not transfer and the client advising in writing that they want to transfer.
We also believe that these examples of good practice are what FOS would be looking for in the event of a complaint.
We believe that if a firm is going to conduct insistent client business that they should follow three steps:-
- Conduct the advice process as normal, ending in a report setting out why the client should not transfer (this is also considered to be a personal recommendation)
- The client confirms in their own handwriting that they understand the adviser’s concerns but they still want to go ahead because of XYZ
- If the adviser considers the client’s reasons to be reasonable and it is evident that they understand the risks they will be taking, issue a further report cross referencing to the original report, their correspondence, the fact that the client will be considered to be an insistent client and that the transfer itself will be against their advice but here is the recommendation on where to place the monies once the transfer has taken place/ recommendation on how to meet the client objectives
In conclusion, we accept and acknowledge that insistent clients do arise from time to time. Whether the firm decides to work with a client on this basis is up to them. However if the adviser is going to go down this route, please do not cut corners and do a rush job, regardless of how much pressure the client is putting upon you.