"Advisers do not have a free hand in making their recommendations, which is something that most clients will not realise"by Andy Davis / June 15, 2016 / Leave a comment
Published in July 2016 issue of Prospect Magazine
Although personally I enjoy the challenge of deciding my own investments, it obviously doesn’t suit everyone. For others, meetings with a qualified financial adviser who knows their circumstances offer a much less stressful way to make financial plans and manage their money. Having spoken to numerous advisers for journalistic reasons I know the contribution that they make to what are often complex decisions.
However, there is a question mark in my mind over financial advice that is not to do with its usefulness but with how the advice is put into practice. The problem is that for all their broad knowledge and experience, advisers do not have a free hand in making their recommendations, which is something that most clients will not realise.
Advisers today work under some tough constraints. They are heavily regulated and must be able to demonstrate that their recommendations are suitable for each client bearing in mind his or her personal circumstances. They also retain lifelong liability for any mistake they might make—so a client that has suffered a poor outcome could complain and seek redress decades later, long after the adviser has retired or moved to a different career. These stringent consumer protections exist for good reasons but they also have troubling consequences.
Alongside the need to satisfy their compliance team that their recommendations are appropriate for that particular client, financial advisers must also take steps to cover their lifelong liability for errors. Standard (and therefore cheaper) professional indemnity insurance will not usually cover them for advice on new or non-mainstream financial products, and so…