IFAs quizzed by FCA over insistent clients

14 December 2015. Published by James Wickes, Partner

The FCA has asked IFAs to explain how they deal with situations where clients wish to act against advice on pension transfers.

The FCA has sent a questionnaire to IFAs (amongst others) inviting them to confirm whether or not they provide advice to new or existing customers on transferring from a defined benefit to a defined contribution scheme, in addition to advising on the transfer of other safeguarded benefits.

If an IFA answers in the affirmative and confirms it gives advice on pension transfers, the FCA has requested details as to how the IFA handles insistent clients, i.e. where a customer demands a pension transfer notwithstanding the IFA's contrary advice.

The questionnaire (sent to firms in November) also asks: (i) what IFAs charge for such transfers and (ii) the number of requests received from new and existing customers both in the 12 months prior to the pension freedoms which were announced in March 2014 and since the pension freedoms were introduced in April 2015.

The questionnaire was apparently sent to 400 firms, including small IFAs, networks, banks and insurers; however, the questions relating to insistent clients and pension transfers are aimed at IFAs.  The request forms part of the FCA's wider Financial Advice Market Review (FAMR) and falls at a time when pension advisers are reporting increases in requests from members to transfer from DB to DC arrangements, with Xafinity reporting that during October and November the numbers of scheme members accepting a transfer value across their defined benefit schemes doubled.

The FCA previously published a fact sheet intended to provide a 'helpful reminder' of its position on 'insistent clients' (the full title being: Fact sheet 035. Pension reforms and insistent clients) – see our blog post here. The FCA confirmed the three broad steps firms should take if an adviser chooses to arrange an insistent client instruction:

1) Firms must provide advice that is suitable for the individual client, and this advice must be clear.

2) It should be made clear to the client that their actions go against the advice being given.

3) It should be made clear to the client what the risks of the alternative course of action are.

In the event of a complaint from an insistent client, it is important for IFAs to have a documented process in place so they can demonstrate to the FOS how they deal with such cases, and to ensure they adopt a consistent approach in line with these steps. Recent adjudications point towards the FOS rejecting illegitimate complaints where the guidance and process has been followed and we consider it would be prudent for IFAs to protect themselves against future claims by fully documenting these steps.