Many advice firms over recent months have been faced with the dilemma of whether to work with an insistent client.
There is arguably a moral dilemma as to whether to transact business on something you think is inherently wrong for the client, as well as the fear of regulation and the potential for future complaints, particularly as in the past the FCA has not formally recognised insistent client.
The FCA published a factsheet on how to deal with insistent clients following the pension freedoms. But a more recent paper on implementing the Financial Advice Market Review and insistent clients, published last month, is looking to make this more formal by having guidance set out in the FCA handbook.
This latest paper seems to have avoided any kind of fanfare but contains a wealth of interesting guidance that is being proposed to be introduced into the handbook.
It defines an insistent client as "an individual who has received a personal recommendation and chooses to do something other than follow the adviser’s personal recommendation".
The FCA now recognises there may be times when an individual may choose to take a different action to that being recommended. From an adviser’s point of view, this means the client needs to be in an informed position at the outset, so the consequences are explained and the individual understands the implications of their decision.
The proposed guidance clearly sets out the process firms need to follow when dealing with an insistent client:
- The original advice given complies with the requirements for giving a personal recommendation
- They have communicated clearly what their recommendation is and the reasons for the recommendation
- They have clearly communicated the risks of the alternative course of action proposed by the client and why they have not recommended it
- There is a clear distinction between the advice that is being acted against and any subsequent or concurrent advice via separate suitability reports
- A record is kept of the communications with the client which makes it very clear the actions of the client are going against the personal recommendation initially provided. The FCA encourage a record to be kept of the client’s intention to proceed using their own words.
Hopefully, this will give firms some sort of comfort that there is a process they can follow. The Financial Ombudsman Service should be mindful of the rules and guidance in the FCA handbook and in the event of a complaint arising, as long as the process has been followed, they should be okay.
Obviously, you still need to track how many insistent clients the firm is taking on as professional indemnity insurers tend to ask for this kind of data. Firms should also look for any trends which suggest an adviser is taking on more insistent clients than you would expect. Nonetheless, this should be seen as a positive proposal by the FCA.