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Percival ‘makes clear’ FCA’s expectations re insistent clients

FCA technical specialist Rory Percival responds to advisers’ queries to ‘make clear’ how the regulator expects advisory firms to deal with insistent clients

Rory Percival technical specialist with the FCA, has said the regulator is keen to “engage with the industry and find out what its concerns and issues are” and has been travelling the country to meet with “a wide range of advisers to find out the issues and questions that are facing [them] and what we may be able to help with”.

Speaking at the Morningstar Investment Conference this week Percival said that in the course of the regulator’s recent discussions with advisers, “the one overriding question that came back to us is ‘What are we meant to do around insistent clients’. So I want to make our expectations clear in that area.”

Percival said the first thing advisers should bear in mind that there is no reference to insistent clients in COBs, “or anywhere else… although we do recognise that there are situations where you give advice and the client says they want to do something different.”

In respect of that situation, he said: “You are permitted to transact that on behalf of the client but there are a number of things you need to be very clear about.

Issues flagged by the FCA in the handling of insistent clients

First he pointed out areas where the FCA had found problems with the adviser action taken:

1. The adviser hadn’t made it clear what his or her advice is to the client.

2. The adviser hadn’t got to the heart of what the client was trying to achieve. “The client has come along with a suggested solution and the adviser has moved ahead with that without actually taking a step back and thinking ‘ok, that’s the solution you’re suggesting but what is it really that you are trying to achieve and could it be done in a different or better way?’, and then giving their advice,” Percival said.

3. What Percival referred to as a “papering exercise”. “In reality it wasn’t an insistent client situation but it had been processed in that way in order to avoid some of our rules, mainly around suitability.”

What does the regulator expect to see on file?

Percival said what the regulator expects is “actually quite straightforward” and consisted of three key elements:

1. Undertake the standard advice process. “Do what you always do – finding out the client’s circumstances, what their needs and objectives are and giving your advice; making it very clear what your advice is. It might seem obvious but we have seen cases where advisers haven’t taken that step. And if you look at Financial Ombudsman Service (FOS) adjudications, you will find cases upheld where advisers haven’t set down what their advice is.”

2. If the client is thinking about a different course of action, make it clear to the client what are the risks of that course of action.

“If you take 1 and 2 together, the client is now in a position where they can make an informed decision,” Percival said. “They’ve got all the information, they’ve got your advice and they know the implications of following the course of action they’ve come in to see you with, and they have the full picture.”

3. If the client does decide to go ahead with the course of action, it needs to be made very clear to the client that it’s against your advice. “We have had cases where that issue has been fudged and the adviser has agreed with the client and I’ve seen FOS adjudications where they’ve found similar things,” Percival added.

“If you take those three simple steps I can’t see that you’ll have a problem,” Percival stated.

Can advisers refuse to transact against their advice?

Percival said: “There have been some in the sector that have said the adviser should give advice only and not do the transaction against the advice given. We see the rationale of that and you can do that if you want to – we don’t have a problem if you want to take that course of action.

“We say you can transact against your advice but you do need to make the steps mentioned very clear.”

FCA encourages feedback

Percival encouraged advisers to contact the FCA to provide feedback “on how we could make your lives easier or to explain our expectations more clearly”.

 

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