Imagine being forced to give bad advice

It is not quite that bad, but this story – or cautionary tale – shows how a very restrictive approved product list affects advisers.

Thursday, November 28th 2019, 12:25PM 1 Comment

by Russell Hutchinson

One adviser I met recently had clients in an old investment product – but this story could equally well apply to several risk products I know.

Back when the product was offered it was a reasonable solution. Today, it is expensive and there are plenty of better options. The company that offered it kind of knew that – they closed it to new business. They did not replace the product. No upgrade pathway was offered to clients. No equivalent product suitable for the clients to transfer into was obtained for the advisers operating under a restrictive list of providers and products.

So, the clients were stuck, and the adviser was worried: the terms of his employment meant that he had no options.

It is a good illustration of how a professional adviser, limited by the choices of their employer, can face situations in which they are in a box – unable to give good advice.

Good news: today he has options. It means that he is now systematically working his way through the clients to determine what the right course of action for each one is. All this time he has felt responsible for them, and only now has he been able to sort the matter out. I asked him whether he would go back to a situation where he had limited options. Of course, the answer was "no".

A failure of the old regime was that an employer of advisers could have very restrictive employment terms and the adviser’s ability to give good advice could be compromised by those. The curious example of employees summoned to give evidence to the Financial Markets Authority when it was perhaps their employer who should really have been subject to examination underlined that for me.

But the problem was never fully explored. It was overtaken by the review of the old Financial Advisers Act.

The new regime is better designed to cope with an employer-employee relationship, but the control of providers and products will in most cases rest with the financial advice provider. Unless you are going to run your own FAP, your selection of FAP is an incredibly important decision. Whoever that is, you need to be satisfied that you will have the necessary product tools at your disposal to enable you to give good advice.

Tags: FAP Opinion Russell Hutchinson