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Compliance insight: FCA and ‘insistent’ clients

Steve Bailey, director of compliance firm ATEB Consulting, provides some practical guidance on dealing with clients who want to take a course of action that is contrary to the recommended advice

Firstly, the FCA rules do not refer to insistent clients. It is recognised, however, that occasionally, clients may want you to facilitate a transaction against your advice. When a client does this they are commonly referred to as an insistent client.

The FCA outline three key steps for facilitating such transactions, namely:

1. 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.

2. It should be clear to the client that their actions are against your advice. You should be clear with the client what are the risks of the alternative course of action.

3. Where the advice includes a pension transfer, conversion or opt-out, there may be additional requirements (see our article here).

Step 1 above is important. You must follow the normal advice rules i.e. gather know your client (KYC), analyse requirements, make a suitable recommendation, issue suitability report, etc.

Please note that a request or preference by the client for a particular solution – for example accessing cash from a pension – is not an objective. It may be a solution, but it is not an objective. We often see vanilla type objectives like this in client files and they don’t meet the requirements detailed in COBS 9.3 (see here).

You must ascertain the client’s actual investment objectives so that you can advise on a suitable course of action. In this example, what does the client want the cash for and why? This is important.

Your file should include an assessment of all potential options considered for the client. It should not be an ‘order taking’ exercise that could result in advice not being in the client’s best interest.

If a client does disregard your advice and insist on another solution, you should make the reasons why and risks associated with their chosen action clear. We suggest highlighting them in your suitability report.

The FCA quite rightly highlight that ‘it is unlikely to be common for clients who are seeking advice to disregard that advice’.

Our View

Insistent clients should be the exception rather than the norm. You may decide that you will never transact such business. However, we do anticipate a potential increase in such transaction following the pensions reforms.

It is important that you strictly follow the three steps above. You can’t shortcut this process. As such, you need to charge proportionately; otherwise you should walk away and not facilitate the transaction.

Insistent client ‘advice’ is a potential high risk area.

Suggested Action

If you allow insistent client transactions you should:

• Read the fact sheet carefully here;

• Note the good (and poor) practices and assess yourself against these objectively;

• Implement a clearly defined documented procedure that includes a pre-sale compliance ‘sign off’;

• Ensure your PI insurer knows that you may undertake such business (please note that if it is excluded from your PI policy you will be liable for the full claim and will have to hold additional capital resources).

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