Pension regulators are setting up a regime that does not allow consumers who ignore financial advice to claim compensation for their errors of judgment.
Hot on the heels of a Pensions Ombudsman case that dismissed a consumer’s claim for lost money because a provider followed his insistent instructions to transfer funds to an alleged pension liberation scheme, the Financial Conduct Authority (FCA) has published guidelines on how to deal with clients who do not heed advice for IFAs.
Clients who carry on regardless of best financial advice seem to fall into a black hole of financial regulation.
The FCA handbook for advisers has no specific guidelines on how to deal with them.
The general view of regulators seems to be that if someone is given the right financial advice and chooses to go ahead without heeding what they have been told, then if they lose their cash they cannot expect compensation.
However, to monitor this viewpoint, the FCA and other regulators want IFAs to follow strict rules.
First, the adviser must:
- Provide clear and suitable advice to the client about their finances
- Provide an explanation that any decision to act outside that advice is their own decision
- Point out any risks relating to the alternative action
If this advice concerns a pension fund, then an adviser should consider calling in a specialist.
“This is particularly important if the consumer wants to transfer out of a defined benefit pension into a defined contribution scheme as the starting point for the FCA and the ombudsman is this is always an unsuitable move,” said an FCA spokesman.
The FCA guidance explains no specific rules apply to advising insistent clients by identifying their investment objectives and how they intend to meet their goals.
Enhanced value pension transfers
“There are no rules stopping advisers doing business against their advice,” said the spokesman. “We have no data on how often clients may act against what their advisers suggest, but do not expect it to be common.”
A specific cause for concern, says the FCA, is when insistent clients want to switch cash with enhanced pension transfer values out of a direct benefit scheme with other benefits that could not be replaced in the new scheme.
Research showed 59% of these cases were insistent clients, 34% received unsuitable advice and three out of four involved disclosure failings that did not adequately explain the risks of the transfer.