As many of you will come to learn over time, I have a number of things that I "champion", Corporate Consulting is one (I was one for more than 20 years and feel that the big firms deliver questionable quality in favour of lining their pockets to smaller firms) and ethics is another (my ethical chip is massive and I get very agitated at injustice or people being ripped off) 

So you can imagine that I have mixed feelings about Claims Management Companies (CMCs). 

Now I am not talking about Law firms that tell you there's an easy £2,000 for a "whiplash" claim from a tiny bump you had (these in my opinion are not real law firms, rather claims chasers!) nor am I talking about those that pursue PPI claims because let's face it, PPI was in most cases mis-sold and an awful rip off. 

No I am talking about those that I keep hearing on my local radio saying: 

"If you have ever been sold an investment by a bank or financial adviser........." you know the ones? 

It set me thinking....... 

Should advisers be worried about these CMCs? You may not like the answer I am afraid, yes and no! 

Let us for a minute ignore the CMC boss that was jailed for 21 months back in 2018 for fraud or the scammers that are passing themselves off as the ABI! Hopefully with the FCA now directly regulating these organisations we should see some sense in this market (fingers are firmly crossed) 

Now don't worry, I am going to at some point, bring in Adviser Diligence (you knew that was coming right?) and a suggestion on how to limit your risk from these charming and wholly ethical people. 

What it seems that these thoroughly wonderful people are seeking to do is exploit one of two things: 

1. The mercenary client that cares only about £££££ and will not bat an eyelid throwing anybody "under the bus" as long as they get paid
2. The naive client that doesn't really understand things all that well and probably never reads the reports that you write and put so much effort into to follow the FCA handbook and guidelines. 

Now there is little that we can do about Client 1. They often tell you everything is hunky dory and as soon as they see ££££ they change their mind and deliver you unto the chopping block and then you have to defend yourself (only in dealings with the FCA and FOS are you guilty until proven innocent!) There is a way to limit the potential damage this type of client could do to you though and I will show you later. (I'm good like that) 

Client 2 however, we can do something to guard against and I am not implying that they are a threat, they are simply open to being swayed by someone suggesting you have done them wrong and that they could get thousands of pounds..... 

Remember though that we can't really blame Client 2,  in many cases it is not really their fault that they are this way (in relation to certain types of business) but we can do things to reduce the risk from them and improve their understanding so when the evil CMC cold calls them they can rebuff them straight away. 

So what can you do to protect yourself from these CMCs? 

It's all about making sure that your advice, whatever area of planning it may be, is robust and can easily be justified. 

Now it's no surprise I bet that DB Pension Transfers are now the CMC's latest target! Many of the radio adverts are heavily biased towards these and generally make the statement that "you may have been mis-sold" and "you may be entitled to thousands of pounds in compensation" (I know that the Heart network runs that one a lot) 

So if you have ever carried out a DB transfer into some form of Personal Pension/SIPP then you should read on.....if you haven't and never intend to, you still need to read on. "Why I hear you cry?" because you don't need to be genius to figure out that all the other areas of advice will be next on the CMC's radar. Think about mortgages.......how secure do you feel about every mortgage that you have sold? 

That ISA switch that you did into a DFM that had higher charges, has it performed poorly? Has it lost the client money? 

I know that you are not responsible for the investment performance of your advice (well you sort of are in reality) but it is just this sort of event that these CMCs are using to get your clients to sign letters of authority and allowing them to “go after you” just listen to their adverts and it is clear that this will be the trigger for these clients to call them…..even though it’s not really ethical to use investment performance against an adviser, it seems it is their “match to the petrol” as it were. (my personal opinion is that it is being deliberately used unethically to get clients to deal with them so they can get large fees, as much as 40% in some cases but I am a bit of a sceptic) 

Right, so enough scaremongering from me (I do that rather well) what is the defence against these unscrupulous organisations? 

The fact is that against Client 1 (remember, the one that will throw anybody under a bus to get paid) there really is little you can do. You will never change their view on the world I think, if they smell easy money then chances are they will try to get hold of it in any way they can but if your advice is robust then you should be able to refute any allegations. 

Client 2 though, the genuine person that you were able to help with some decent financial planning but for some reason still doesn’t quite understand what you did and why it was good and furthermore, that investments do go down as well as up! What can we do to help them? Now the risk of them making such a claim can be, in my personal opinion, mitigated. You may never fully remove the risk but I believe that you can reduce it. 

How so…..? 

It all comes down to evidence and justification I am afraid (come on some of you knew this would be my suggestion right?) 

You can defend a potential challenge to your advice not just by following the FCA Guidelines, Handbook and COBS but by using common sense and logic. 

• You start by gathering every piece of information that you would reasonably need to make a recommendation, so your fact find should be crammed full of RELEVANT information that you need to support your advice. This includes objectives that are specific to that client (no general ones please!) This gives you EVIDENCE.
• You review everything they have that is relevant and show all of your workings out (it’s a bit like school this!) This is where you can show that their existing stuff can’t meet their objectives. This is half of your JUSTIFICATION.
• You then do your research and compare their existing things to what they could have using a reputable research tool (here you get to match their objectives to features and every client specific objective must be met by at least one feature of what you plan to recommend) this must include proper fund research. This is the other half of your JUSTIFICATION.
• Then comes your recommendation and this is driven by all the previous evidence and justification, make it clear and concise and relevant to that client.
• Then you issue warnings to the client where appropriate
• Now here's the extra thing and it's frankly obvious and simple, you get them to read the fact find and sign it and then when you complete your suitability report (which you get them to sign after they have read it) you send their signed fact find to them, this is in my opinion, basic stuff and about as far as you can go in this part. 

Now I know that is a point of argument with some but this is my article so I make the rules! 

I am not saying that this action makes you bullet proof as I know that some don't care if the client signed anything or attested that they have read everything but get this, in a court of law, it makes a huge difference! Now FOS are not a court, they are not a judge or a jury but they do make unilateral rulings that have serious consequences for financial advisers in this country. 

What I am angling at here is something called the "reasonableness test" 

In law when looking at this sort of thing, it is considered "did the person know or ought to have known?" 

When looking to defend an allegation of unsuitable advice from a complaint, one of the core elements comes down to the question of whether it is reasonable that the client knew the information that they are claiming they did not. 

I'll try to give you a specific example, here goes...... 

Your client has a DB benefit and has a CETV statement (Cash Equivalent Transfer Value for those that aren't familiar) they also must have had a scheme/member booklet and may even have benefit statements and annual reports from their scheme. They will without fail, have access to these and will have been informed how to get hold of them too. (this is not though your responsibility but theirs) 

So here I am establishing something simple, your client knew or ought to have known how their existing DB scheme works and the benefits it provides. If they never bothered to read about their own benefits they had the ability to and should have, that onus falls wholly on them and not you! 

Ok so they come to you and like very many, want to see what they might get if they transferred out into a Personal Pension. Let's not kid ourselves, 99% of them do not want just a "review of their DB scheme benefits to understand them" they can read and can frankly do this themselves, they have scheme administrators, Trustees and possibly advisers that can help them. 

So in my 25 years of experience in DB opinion, there is no excuse for this client not to know what they have and how it works. In fact the Pensions Regulator demands that they have all this information, whether they choose to read it or not is their decision. 

So they've come to you and the conversation possibly touches on Pensions Freedoms, potential for more tax free cash, potential to tailor their income to their own needs, ringing any bells yet? 

You carry out the required analysis of their DB scheme benefits and tell them what they already have and how it works BUT crucially they knew or should have known this already, ignorance is still no defence under the Law but here you establish the first protection point, you explain what they already have and how it works and any guarantees in it, even though they should know already. 

They then tell you that they have specific objectives and guess what? Their existing DB scheme cannot meet these, a very common one is taking the tax-free cash but not the income and possibly still working. Now we all know that no DB scheme allows you to do this, it is all or nothing. So this client has no option but to look at a transfer out if they really want to achieve their stated goals. 

Now cutting through all the mountains of work that we do in such cases, the point here boils down to this: 

Every complaint I see on DB includes the statement that the client "never wanted to transfer and only wanted a review of their DB benefits" the implication is that the adviser was only retained to read back to them their benefits in essence and they, in my opinion, should have known already what they have and how it works, again ignorance is no defence. 

Ok so notwithstanding that there are almost always allegations that they are actually cautious investors and want guaranteed income and that had they known the risks they would never have signed the many documents riddled with risk warnings! (can you see my tongue in my cheek?) Most clients that complain seem to be polar opposite to everything they told you originally, when you compare their statements through CMCs (and who knows if they are coached or not?) to what they told you originally, they often bear little resemblance, conveniently for the CMC. 

And so there you are embroiled defending a claim that you failed them and are a horrible person, preying on this poor innocent client......shame on you! 

Before I finish this I want to make it crystal clear that there are clients that were deceived into transferring out of DB, lots and we all know which schemes I am referring to right? 

But what I am talking about here is the isolated case of that one client of yours that has gone from being satisfied with what you did (and often having had lots of tax free cash to spend!) to now being deeply wounded by you and their life is in ruins (according to the CMC) 

If you stick to thorough evidence and justification and get the client to sign everything and give them copies, it makes it harder to support a claim that they knew nothing or that they didn't want to look at a transfer. 

Also if you ask us at IFAC to help you with refuting the allegations we can ensure that all bases are covered and that any allegation is robustly defended. 

So in summary, if your advice is based upon good evidence gathering, client specific objectives and a good, logical recommendation and you give everything to the client and get them to sign, in my opinion, you have done all that you can to protect yourself, however, if your advice is not as robust or lacks logical reasons then you leave yourself exposed to challenge and this is all CMCs do all day, every day, seek ways to exploit grey areas or holes in your advice, so leave none! 

With so many rules and regulations surrounding the conduct of advisers and the wide rights of clients to complain, I personally see no role for the CMC in regulated business, unless they seriously clean up their act I can’t see me changing my view on how they operate.

 Goodbye for now.