This update is pure feedback from anecdotal sources following many and varied discussions around MiFID II and the reality for advisory firms.
That encounter where you listen to a few details and then tell someone to stay with their existing arrangement, has become regulated investment advice (I am talking about investments here, not what sort of car to buy). All regulated investment advice requires (rule) a full suitability assessment, research and suitability report. After a night out in the pub where at 6pm you gave this advice, the chances of backing it up with all of the above are zip! This is very important where DB Schemes are concerned and of course very conflicting – the FCA wants advisers to assume DB Transfers are unsuitable, but has a rule that full suitability assessments have to be done even where advice is to “hold”! Hold, buy and sell give away the fact that our EU masters designed this rule for stockbrokers really.
Also, if you are going to tell someone to keep their final salary pension make sure it’s not a specific personal recommendation and most particularly if you are not a quaffed Pension Transfer Specialist.
This also makes a nonsense of the proposed ‘triage’ approach to DB Transfers (on my planet).
So, what to do? Well, the best solution I have seen is to provide a generic information sheet or point to one, that explains all the reasons why a DBT is not a good idea. Talk about the pros and cons, but not about specific plans or schemes and you should be OK. This type of advice is OK because it is unregulated and it is unregulated because there is no personal recommendation in terms of product or arrangement at the end of it.
This issue may well render last years advice propositions unworkable so it is important to make sure that the ‘cheap as chips’, being ‘fair to the client’ part of your proposition, where you look at the feasibility of a transfer, does not promise a recommendation.
Some advisory firms used to headline their on-going review services as portfolio reviews whereby the adviser realigns the firm’s portfolios regularly and makes fund switch recommendations periodically to clients. Unfortunately this is not enough now. Any on-going service that involves an arrangement has to include a full annual suitability assessment resplendent with report, however unwanted (by the client) or unnecessary that may be.
This has narrowed the possibilities for different propositions really. If you are going to mess with asset allocations or funds, then a full annual suitability review has to be done at least annually, if a full annual review is not on the table, then you cannot mention the product! You can do other stuff, including updates, alerts and guidance, but you cannot make recommendations around that portfolio that has gotten out of kilter without doing the full monte!
Solutions? Well, various really: here are a few
Those client who just want you to look at ‘one thing’ and don’t want to tell you very much about themselves at all… these are not good. If there is not enough information to give the ‘focused’ advice, then you can’t do it (safely). You cannot just issue a disclaimer anymore, you should walk away.
You can only fix this one by obtaining nice clients who like and trust you. Frankly, a client who does not want to tell you everything you need to know, is not really a great proposition for a long, happy and profitable relationship.
Forget it, there are no improvements!
Oh well actually, there is…
I know you think I am being very flippant here, getting carried away, but actually, all of these are reasonable ideas and worth thinking through.