Identifying Them & Remaining Compliant
We recently came across a case that caused some confusion as to what is an Insistent Client and how to deal with them. The FCA Handbook does not refer to insistent clients and there are no rules or guidance specifically about this. The following will hopefully help to show the FCA's current stance after their recent consultation paper. First of all, Insistent Clients must not be confused with an Execution Only client:
- Client knows exactly what they want and the choices available including the premium, sum assured, term and availability of critical illness, waiver, etc.
- On pensions, the client should know how much of a pension contribution they want to put in, the tax relief available, the term of investment and the selected funds.
- Client should be asked to put all of this information in writing or in an e-mail so that the adviser has it on record. Alternatively, the execution only confirmation letter should detail the orders that were given verbally by the client.
This term is used to describe a situation where a client insists on taking a different route of advice to that prescribed by the adviser.
The following regulations still apply:
- The Principles for Business
- Client's best interest rule
- Fair, clear and not misleading rule
The new FCA measures include:
- Making it clear to advisers that where they facilitate a request that conflicts with the personal recommendation they should ensure the original advice given complies with the requirements for giving a personal recommendation.
- That they have communicated clearly what their recommendation is and the reasons for their 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. It says this might be achieved through distinct suitability reports.
- They keep a record of the process followed and the communication to and from the client that makes it clear that the action is against the personal recommendation at the client's request. It adds that best practice would be for a record of the client's intention to proceed against advice to be in the client's own words.
What to include in the suitability report
In the normal way, the suitability report must specify the client's demands and needs, explain why you have concluded that the recommendation is suitable and explain any possible disadvantages for the client (COBS 9.4.7). For pension transfers, conversions or opt-outs there may be additional requirements, such as:
- Comparing the benefits to be paid under the DB scheme with the benefits of the personal/stakeholder scheme.
- Ensuring that the comparison includes enough information for the client to be able to make an informed decision, for example, explaining the risk transfer from the scheme provider to the client and the extent of the potential loss of benefits, and
- Not viewing suitability in the light of the critical yield alone (see COBS 19.1).
Having set out your advice clearly in the suitability report, you need to be clear with the client:
- About the risks of their chosen course of action.
- That he/she is acting against your advice This could be set out in the suitability report or elsewhere.
What to keep on file
The file should record the normal advice process referred to above. In addition, the file should show you have made it clear to the client the risks associated with their chosen course of action and that the client is acting against your advice.
The suitability letter should be drawn up detailing the adviser's recommendations on the best course of action and the reasons that these are suitable.
If the client wants to take a different path, then this should also be documented in writing, setting out the details of the original recommendation and why this was suitable and detailing what course of action the client is now insisting on. This second letter should not attempt to say that this new course of action is advice.
In some cases, where the required (insisted upon) action is clearly not in the client's best interests, the adviser should refuse the business. At the end of the day, you would be held responsible as the Adviser who transacted the business!