Opinion - Strong returns

Keith Richards believes that years of maintaining professional standards has put advisers in a strong position

Often, we do not appreciate the benefits of increased professionalism in the short term. It is only when we are in the middle of a crisis that we realise how important it was to work on quality and service for our clients over many years.

That has certainly been true this year. All the work that advisers have put in over the last 20 years, moving from transactional, product-based business models to practices that deliver ongoing advice to a stable client base has put the advice sector in an exceptionally strong position.

With these relationships in place, advisers have been able to work through the challenges of 2020, where other sectors of the economy have found it harder to adapt. Just as advisers emerged from the financial crash, the retail distribution review and the political turmoil of recent years with a stronger base of trusted relationships with clients, the advice profession has tackled this challenge with equal fortitude.  

Later life

The country will also need our resourceful profession as it rebuilds. One issue that has become apparent more strongly than almost any other is the need for a new national strategy for care and how people prepare for later life. Currently, there are so many disincentives for large sections of society to plan for care and later life, they push an already difficult issue even further to the back of people’s minds.

However, there is a real consensus now around creating a platform for funding care that supports people planning for later life to save for the future, avoiding the kind of savings traps that exist from means tested benefits. There is a huge opportunity for our profession, which has already won the confidence of so many people as they move into retirement, to help them to prepare for later life, understand how they can maintain their hard-won financial independence and mitigate against the financial risks of paying for care in later life.

All the work that advisers have put in over the last 20 years, moving from transactional, product-based business models to practices that deliver ongoing advice to a stable client base has put the advice sector in an exceptionally strong position

Of course, the trust that the profession has built in the last decade cannot be taken for granted. During the summer, at the PFS we have been working on the Financial Conduct Authority’s (FCA) policy statement and draft guidance for defined benefit (DB) pensions transfers. We have spoken to the FCA and members directly on this crucial issue, as well as holding webinars and publishing an updated good practice guide.

One of the key issues that comes out again and again is what to do about insistent clients who have been given a recommendation not to transfer out of their scheme, but who nevertheless want an adviser to facilitate the transfer. Current regulation allows this to take place, but the FCA makes it clear that advisers must be certain that their client understands the risks involved.

This has become referred to as the ‘insistent client process’. I think the idea that facilitating an insistent client’s wishes to transfer out of a DB scheme is a standard ‘process’ is very dangerous. This is because we, as financial services professionals, make it our business to make every process that a client must go through as painless and frictionless as possible.

Now, if we think of an ‘insistent client process’, we are naturally going to try to find ways of making that process as painless as possible for clients – just at the time when we are supposed to be spelling out the wisdom of remaining in the DB scheme.

A much better way to think about an insistent client scenario is as a breakdown in communication. An adviser has signalled to a client that they should not transfer out of a scheme. The client has not taken this on board and so the first duty of any adviser – whether it is the original adviser or a subsequent one – is to make it clear to the client the reasons why the original recommendation was made. It should only be as a very rare exception, perhaps because of a radical change in the client’s circumstances, or because of a fundamental flaw in the original recommendation, that the transfer is reviewed again. But in every other case, we must preserve the integrity of our profession by standing by the recommendation not to transfer, not by undermining it.

Preserving that trust is crucial – not only for people working in the advice profession, but for the millions of people who will need advice more than ever to prepare adequately for retirement and later life.

Keith Richards is CEO of the Personal Finance Society