Financial advisers should refuse to deal with insistent clients, as they won’t have a lot of protection if their cases reach the Financial Ombudsman Service, experts have warned.
Despite the Financial Conduct Authority rules in this area, it will be difficult for advisers dealing with this type of customer to get professional indemnity insurance cover, said Daniel Kelly, director at Onyx Insurance Brokers.
Speaking at a webinar on defined benefit transfer advice organised by Prudential, Mr Kelly said the PI market considers this to be a high-risk area.
He said: "We have some insurers that provide cover for DB but exclude insisting clients.
"We have other insurers that [dictate that] if you want cover for insisting clients, then first you need to confirm that you're following the FCA rules, and further they expect to see copies of the letters from the clients confirming that they accept what you're saying, but they want to do something else.
"And unless they are hand written and different in every scenario, then you're going to have problems. If it looks like the adviser has done it for them, then insurers won't be interested."
The FCA has set rules for how advisers should deal with insistent clients.
These include that appropriate advice has to be given following all the rules surrounding that type of advice.
The adviser also needs to make it clear to the client what the risks are in following the alternative course of action.
If the advice includes a pension transfer, conversion or opt-out, there may be additional requirements, according to the FCA.
Finally, the adviser needs to make it incredibly clear the actions are against their advice.
Damian McPhun, partner at Beale and Company Solicitors, warned advisers often do not fully understand what an insisting client is.
He said: "I've come across cases where firms have treated every single customer as an insisting client thinking that gives them some protection, which is utterly bonkers.
"Insisting clients is a very difficult topic, and advisers don't get a lot of protection.
"The way Fos looks at this is if the clear and central advice is don’t transfer, and the client is absolutely adamant they want to, they will take the view that if you sign the document you gave the advice, and you're facilitating them to put themselves in a worse position.
"Nine times out of 10 the ombudsman will say that the adviser should have declined to do that, because they wouldn't be in that position, they wouldn't have suffered the losses, and therefore that redress falls on your door."
FTAdviser reported in September how the Fos ordered advice firm Portafina to pay compensation after giving unsuitable advice on a pension transfer, despite the client acknowledging he was "insistent".
In 2017, the Fos urged advisers who deal with insistent clients to get these individuals to put their intention in writing and tape them.
Russell Facer, managing director at compliance support services Threesixty, also suggested the concept of 'insistent client' does not as such exist.
He said: "If they're a client of yours and you are working with them, and they trust and value your opinion, then they will listen to you. Otherwise, you need to work on your education piece. Insistent customers - someone coming for a one-off transaction - you may have that.
"Insistent customers where you know wholeheartedly that it isn't in their best interest [to transfer] and they want to go ahead anyway, there is an element of asking 'really, you want to get involved with that?'
"I would say the majority of firms would stay clear, because the risk associated with it is pretty large."
Vince Smith-Hughes, director of specialist business support at Prudential, noted that the Personal Finance Society has already said that firms should stay clear from this type of customer.
He said: "If you're dealing with insistent clients, then you're clearly going against the advice that you've given to them, I just can't see that is a very good way forward."
Paul Stocks, financial services director at Dobson & Hodge, said the theory and the reality can often be very different.
He said: "Not everyone makes what we would perceive to be rational decisions nor does everyone make decisions based on ‘value’. There are often other, external, drivers which consumers may prioritise above the perceived wisdom of rationality.
"It’s therefore very simplistic to say that if clients want to go against advice, the education piece needs to be worked on – it may simply be down to the fact the client is prioritising something the adviser doesn’t feel strongly for.
"Whilst there will be some who look to take advantage of regulatory procedures and we therefore need to be very mindful of that, it feels to me that ours is the only profession where we can tell someone not to do something, reiterate that’s not a good idea and then when they instruct a firm to go ahead nonetheless, the firm is liable for the client's actions."
He added: "We don’t seek to act for insistent clients and certainly wouldn’t look to start an advice process in the expectation of such an outcome, but I do fear that those who we effectively ‘turn away’ will find somewhere else to transact.
"My view, therefore, is that the whole issue needs to be addressed given that there is a danger we are setting our own moral standards over a how a client should ultimately use their own assets."
maria.espadinha@ft.com
