Financial advisers are having to make recommendations in an environment that, given the potential fi...
Financial advisers are having to make recommendations in an environment that, given the potential financial consequences, place us uncomfortably far beyond what any sane person would regard as a sensible exposure to risk.
With no time limit on compensation claims, every adviser approaching retirement is working in an environment where each and every piece of advice they give represents a risk to their own retirement. They can never relax because a claim may occur perhaps 20 years down the line when the FSA might well come under political pressure to bring hindsight into the equation when looking at the next mis-selling scandal.
Most advisers have clients in closed or poor performing with-profit funds. In my case, I have many with relatively small holdings in Scottish Mutual.
I am looking to retire in two to four years' time and, although I pay a premium of more than £3,500 a year, my current professional indemnity (PI) excess is as much as £7,500 for some classes of business. When I leave the industry I will not be able to justify paying for run-off cover at £6,000 per year, which will almost certainly carry an even higher excess. Even with cover in place, the high excesses inevitably mean I will be paying for any 'mistakes' myself anyway.
Compare our situation with that of the staff at the FSA who make the decisions and have no on-going personal responsibility. Would any of them take the job if they were in our situation?
I am not making any criticism of the FSA here, just stating facts that inevitably influence our day-to-day decision making process. Over the past two weeks I have been trying to obtain guidance from my network, Sesame, on how to develop a strategy to advise my Scottish Mutual and other with-profit clients. Given the fact Sesame is able to gain little information from the firms, I can readily understand why it finds this impossible at present. If the resources of the Sesame research and compliance department can not be sure what represents good advice in these circumstances, how can an individual IFA be expected to do so?
On the other hand, clients still expect us to look after their investments and give them on-going advice in this area. The FSA rightly requires us to develop investment recommendations based on sound research and our client's attitude to risk.
IFAs should be working in a regulatory framework where the FSA clearly sets out the criteria by which we should make recommendations on closed funds and at the same time ensures we have a right of access to the information necessary to be able to advise our clients with confidence. By 'with confidence', I not only mean that we believe we are acting in the best interest of the client but also that we need to know that, if we follow a proper procedure, we will not be accused of mis-selling down the line.
Christopher Sheldrake, Principal, The Insurance and Investment