IFA Ethics question

Angus44

A close friend several years ago arranged a personal pension through an IFA. They have looked after this for several years now. It is held within a Standard Life Wrap, which I believe is a broker only product. The IFA has just written to him to inform him that they will no longer represent him as his pension fund (£43k) plus some other investment products is not large enough for them to continue to support him profitably. They offered absolutely no hand off advice just a very terse letter (unsigned), and have left him with a product he neither understands or can deal with. Does anyone know whether an IFA can just drop a long time client like this with no assistance? To be fair, Standard Life have offered some help (at a cost), but it does not seem fair or ethical of the IFA to just dismiss clients to whom they have sold complex broker products. Any thoughts?

(PS this is a repost due to me placing it in the wrong forum to begin with. Thanks).

xylophone

The IFA has no obligation to keep him as a client.

He doesn't have to transfer to Standard Life.

When does he want to access the pension and how does he want to access it?

Is it his only pension apart from state pension?

When does he expect to claim his state pension?

HappyHarry

Can the adviser do that? Yes.

Should the adviser do it? Ethically it feels uncomfortable, but it makes no sense for an IFA to provide ongoing advice on £43,000. Even with a 1% ongoing fee, that's £430 per year, and that would be loss making for an IFA in my area. Especially following the introduction if the new Mifid II rules last year.

If the IFA had a handful of clients like this, then I would like to think the IFA would happily suffer a little, and take the hit. After all, they signed the client up in the first place.

However, if the IFA, for whatever reason, had a significant number of clients with similar fund sizes, then really the IFA has no choice, or they go out of business.

A terse letter though is a bit off. The least any ongoing client deserves is a phone call, and explanation and some detail about where further help could be sourced.

I too would feel a bit let down if I were in your friend's position.

dunstonh

The IFA has just written to him to inform him that they will no longer represent him as his pension fund (£43k) plus some other investment products is not large enough for them to continue to support him profitably.

This is something that is going on a lot at this time. We have culled just over 100 clients (at firm level) over the last year that would not be profitable to service under MiFID II requirements. We also took another person on (increasing our costs) to help with the extra workload.

It has been horrible to do as many of those have had servicing for decades. They don't want it to stop. We didn't want it to stop but MiFID II effectively forced our hands.

They offered absolutely no hand off advice just a very terse letter (unsigned), and have left him with a product he neither understands or can deal with.

Whilst they may be turning off ongoing servicing, this doesn't mean they necessarily stop being the adviser. In our case, we just moved those people to a transactional basis and will charge them when they want something. Some of them have contacted us since we moved them to the transactional basis for little things and we have helped them without making any charge. If it was anything longer, we would charge an hourly rate.

When someone is on a transactional basis, there are fewer regulatory requirements for an IFA. When they are on servicing basis, it imposes a higher workload and a more formal process. The IFA has to do things that a consumer may not necessarily want. Often, those people only wanted a comfort visit and you ended up spending a few hours talking about family and other things. Mifid II formalised things too much.

Does anyone know whether an IFA can just drop a long time client like this with no assistance?

yes.

To be fair, Standard Life have offered some help (at a cost), but it does not seem fair or ethical of the IFA to just dismiss clients to whom they have sold complex broker products.

The adviser may have done it at cost as well and maybe cheaper. They are ending automatic ongoing servicing. They are not vanishing into thin air.

And ISAs are not considered a complex broker product.

MiFID II has been mentioned a number of times. It was a new EU directive introduced in 2018 that really offers very little for consumer benefit and no consideration of different business models or different types of consumer. It creates barriers to advice and destructive. As someone who voted remain, had this directive come earlier, I may have changed my point of view.

I have often put it that MiFID II was created by bureaucrats working in a city with a city mentality who did not consider the rural/local services that IFA firms often carry out.

Angus44

Thanks for your reply. My friend does have a state pension and currently does not need to access the personal pension. I understand that he is contacting PensionWise to discuss his situation regarding the Wrap.

Angus44

Thanks for your reply. I understand that the IFA has just sent my friend an email in which they apologise for mishandling the earlier communication. Still no further help, but they have explained their predicament that they are financially unable to continue to support low value portfolios. My friend feels slightly better about the situation, but is still left with a Wrap product he does not understand. Now talking to Pension Wise for advice.

Angus44

Thanks, Dunstonh. Good to get the IFA point of view, and I understand the predicament. Maybe my friend’s IFA could have included an offer to support on a transactional basis, as you suggest. I think this would have helped. It was a very blunt letter of withdrawal of support that was sent, which was not even signed, and caused quite a bit of distress and worry.
Many thanks for your explanation.

fred246

Can you imagine going to a dentist in agony and him saying 'I could remove your tooth but under the current arrangements it would be unprofitable for me to do so. Goodbye". IFAs haven't got a clue what the word 'ethics' means. It's all just "me,me,me". If your friend just does a bit of googling he should be able to work out how his pension is invested. He can then easily look after it himself. I don't think pension wise will actually help. They just seem to explain how to withdraw a pension. You can see how IFAs make life hell for rich people. They dump anyone without enough cash and then target their marketing efforts at finding rich people. My early working life was blighted by them phoning every few hours. They had a product that earned them commission and had to find a customer to buy it.

shinytop

Can you imagine going to a dentist in agony and him saying 'I could remove your tooth but under the current arrangements it would be unprofitable for me to do so. Goodbye"

No, I can't. If you were registered with a dentist then that would not happen.

But I could imagine a dentist saying, "sorry I'm giving up NHS work because it's not profitable any more". Or a lawyer saying, "that's it, I'm done with legal aid work."

People have a right to make a living /profit.

fred246

The IFA has just dumped his poor customers so he can concentrate on the rich ones. A dentist would never do that. He would accept that some customers gave him greater profit than others.

dunstonh

Can you imagine going to a dentist in agony and him saying 'I could remove your tooth but under the current arrangements it would be unprofitable for me to do so. Goodbye"

Yes. Many dentists do not take on NHS customers. Only private.

The IFA has just dumped his poor customers so he can concentrate on the rich ones. A dentist would never do that. He would accept that some customers gave him greater profit than others.

Dentists do drop NHS. Typically when they have enough private.