Do you really know your client? Chris Wells asks whether they're "‘present’ in the report" and if not where are they?

In our first guest blog spot of the year we hear from Chris Wells of IFAs Included.

In my 15 years at the Financial Ombudsman Service (FOS) I saw thousands of complaints.

And it is fair to say that during my time there, a small number of advisers gave advice that was wholly inappropriate.  

But more often than not, I found that in the vast majority of cases where the consumer ‘won’ their case, they did so because there was insufficient evidence from the adviser to show that they truly knew their client. And as a result there just wasn’t enough evidence to support them in their defence of the complaint.   

Know your customer. It’s a phrase often used and still often misunderstood.

The (FOS) is seeing an increase in complaints about pensions and pension transfers. So why have pension transfers come back onto everyone’s radar again? Well, quite a bit of it has to do with ‘Pension Freedom’.

Pension Freedom means people in defined benefit pension schemes have the option to move away – from what is generally seen as a safe and secure pension arrangement – to one where they have access to their entire pension pot.

It moves responsibility (and liability) for the pension away from employers. Something some employers welcomed with (in some cases a bit too much in my view) enthusiasm.

Consumers were also drawn to the idea because of the carrot being dangled in front of their faces of what would be, for many, a life changing lump sum of money they could spend how they wanted. Surely nothing could go wrong? Except it did, and it still does. And like a broken record we started to hear the stories of consumers who were poorly advised to move their pensions away from companies like British Steel.

We are a long way on from the days of the original pension transfer scandal and regulation has never been as robust as it is today. So why have we seen problems surfacing now on advice given recently?

The FCA took the stance that in most cases, consumers should leave their defined benefit pension in their employer’s scheme. But if consumers did want to pursue moving away from their work scheme, advice could only be given by qualified advisers called Pension Transfer Specialists.

Advising on a defined benefits pension transfer is complex and involves a lot of technical work. And the reports that come out of this in-depth assessment often run into 30, 40 and sometimes 50 plus pages long. I know advisers find the reports a stretch to read and understand, so clients with limited or no investment experience are at a real disadvantage.

I work with advisers to help them speak their clients’ language and reflect that back in their conversations with their clients. I often see suitability reports that I am told are “water tight” and clearly demonstrate the advice to transfer was robust. That may be the case, but FOS will expect a lot more than pages of technical information if a client subsequently feels that the transfer wasn’t the right thing for them to do and complains about it.

Being correct technically is one thing, demonstrating a client clearly understands what is being advised, is another. The number of reports I see that could almost have been duplicated from one piece of advice to another is frightening. Copy and paste at its absolute worst. This ‘blandness’ leaves the door open for clients to question the advice later, and it leaves firms open to the real risk of not being able to show that they really did know their customer when they gave their advice.   

It is almost as if the client isn’t ‘present’ in the report – it could be anyone. Why do they really want to transfer? What are their plans, goals and aspirations? What do their family think?

A typical investment complaint to FOS will be driven by a lack of understanding of risk and a client of a firm saying they did not fully understand what they were being advised to do. And if all a client has to go on is a bland and long document, that doesn’t sound like it’s about them, it just adds fuel to the fire.

Firms are on the back foot if a FOS investigator has to read a long report to determine whether it was clear and concise and client friendly. And the task is made harder if advisers haven’t included the kinds of soft facts that clearly link the advice to that person who sat in front of them.

The adviser community tends to like using forms to get things done. The FCA requirement is to demonstrate “know your client”. So, the answer has always been a fact find document. But the adviser’s ability to ask questions other than factual ones can make the difference when it comes to reducing the risk of complaints and FOS getting involved.  

So why are soft facts so important? Because it’s these that place the client right at the heart of the report. It makes the report obviously about them and their lives. Could your customer tell a report was about them if you took out details like their name, address etc and gave it to them to read?

It sounds so simple to be able to record soft facts and then incorporate them into a meaningful and easily understandable report. I guess if it was, I wouldn’t be working with advisers across the country helping them to do just that!

Introducing our guest blogger - Chris Wells

Christopher Wells worked at the Financial Ombudsman Service for fifteen years specialising in investment and pension complaint. Before that he worked for eight years as a tied and independent financial adviser. 

In 2016 Chris set up his own consultancy firm, IFAs Included, to provide support to the adviser community – helping advisers to have clients who understand and are happy with the advice provided to them. In turn, making adviser’s communication processes as robust as possible.

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