In a highly bureaucratised regulatory set-up in which most firms' options for giving advice are circumscribed heavily, what happens when a HNW customer wants his bank or asset manager to do something that it considers unwise and likely to embroil it in trouble with the regulators?

Now the UK's Financial Conduct Authority is proposing new guidelines to deal with the "insistent client" problem (which occurs when customers refuse to take advice and want to go their own way) that Compliance Matters has covered before.

The FCA says that it is tackling this issue in response to the worries of the financial firms it regulates. In its latest consultation paper it does not explain any problems they might be having, but says that the worst problems are to be found in the area of defined benefits (DB) pension transfers in cases where the value of the funds being transferred (presumably in the teeth of "personal recommendations," i.e. advice in line with FCA rules, to the contrary) exceed £30,000 apiece. HNW customers no doubt form a significant part of this picture. Some firms are unwilling to transact with an insistent client and many pension providers are unwilling to accept a transfer if there has not been a positive recommendation to transfer.

Old factsheet, new guidelines

It is unlikely that any educated reader will ever have uttered the words "I am setting out proposals to introduce my expectations," but this is indeed what the FCA does in chapter six of CP17/28. It actual phrase is: "We set out proposals to introduce the expectations that we have previously set out in our factsheet on insistent clients as Handbook Guidance."

The old factsheet says that insistent clients used to be rare and, in general, a client seeking advice would be unlikely to disregard it. This, however, was before the introduction of "pension freedoms" in the UK in 2015. Neither does it, or the rulebook, define "an insistent client" and there is no rule specific to processing a transaction on behalf of one. CP17/28 describes an "insistent cleint" as someone who has received a personal recommendation from an advisor and chooses to do something other than follow it.

Rather irrelevantly, the FCA says that firms must explain the consequences of "proceeding against the recommendation" to clients who wish to do so. The firms can, of course, proceed but if any firm does, it ought to first make it clear (a) what element of its advice is being acted against and (b) that any it will not give any further advice until the client's request has been fulfilled. The reason for (b) is the FCA's somewhat exaggerated desire to make a clear distinction between the advice that is being acted against and any subsequent or concurrent advice. When the so-called 'guidance' appears, it will dictate that every advisors who 'facilitates' a request that conflicts with a personal recommendation should ensure (a) that the original advice they gave complies with the requirements for giving a personal recommendation; and (b) that they have been clear with the customer about the nature of their recommendation and the reasons for it.

Points to remember

When it comes, then, the 'guidance' will tell advisers who facilitate requests that conflict with personal recommendations to do the following.

• Make the original advice they give comply with the rules for giving a personal recommendation.
• Communicate their recommendations and the reasons for them clearly.
• Communicated the risks of the alternative courses of action proposed by the clients clearly, saying why they have not recommended them.
• Make a clear distinction between the advice that is being acted against and any subsequent or concurrent advice, perhaps through distinct 'suitability' reports.
• Keep records of the processes they followed and their communications with their clients about the clash between their evaluations and the clients'. Best practice, the regulatory thinks, would be for a record of this-or-that client’s intention to proceed against advice to be in the his own words.

In a graph of the multi-headed bundle of rules it is thinking of developing, the FCA lists the forthcoming 'guidance' as an item, with the idea of turning the factsheet into 'guidance' as a 'counterfactual.' It expects the effect of this to be "No change from counterfactual."