Clients Requesting Investment Withdrawals - non advised

I am new to the report writing side of the business having previously been doing admin so am trying to get my head around quite a bit at the moment so be gentle!!

We are currently reviewing all our suitability letters etc to try and streamline and ensure we are still including what we need. One area which has cropped up whilst doing this is when a client calls up to request an unplanned withdrawal from their pension.

It appears our process is
1. Client calls and requests withdrawal.
2. Client provides letter to us confirming he/she wishes to make a withdrawal from pension and neither requires nor wishes advice.
3. We call and process withdrawal.
4. End.

This does not seem sufficient and reading a compliance email received the other day. I am about to read through the COBS 19.7 Retirement risk warnings.

Can I ask what other firms use as a process?

Comments

  • For me, what's important is whether or not that client has had a withdrawal before.

    If it's the first time, yes a formal recommendation with risk warnings is provided.

    For the 2nd+ times, I think what you've suggested above is fine. So long as the initial report says 'you can and will make ad-hoc withdrawals'.

  • Thank you for responding @arongunningham . I have been looking back in the file and see the client took full TFC and no income at that point. The SR was a drawdown report as funds had been transferred in from a GPP to a new plan with drawdown facility. It does state
    'Under new Flexi Access Drawdown rules there is no limit to the amount of income that can be taken from your pension each year. However, any income taken will be added to your other taxable income this year and income tax charged accordingly. This can have a significant impact on the net income received.

    Having discussed your circumstances we have agreed that at this time your income will be nil. Depending on how long it takes you to find employment you may withdraw further taxable income from your drawdown fund. There are then further risk warnings including that if client withdraws all money then he will be reliant solely on state pension provision. There are further risk warnings later in the report.

    I do not at present see another report when he has taken his first or subsequent withdrawals. Just the letters from the client.

  • @ChristineM
    if they have sought advice on the matter or not I would be careful that the matter is covered by a letter expanding on the risks e.g. reduction in potential future income, MPAA and if any alternatives were considered which I guess not. You may want to run this one by your Compliance Manager/ Manager to get an idea of the Firm standard operating procedures. An illustration would also be required. A question here is if the Firm receiving fees from the Client for the plan therefore should it really be accepting Client instructions and not actually advising on the merits of these?

  • Thank you @Northface . The client is not paying an ongoing fee. I think he would have been directed to make the withdrawal(s) himself but the provider does not allow for this. Thank you for all your comments, will certainly get a compliance view on this.

  • parawhatparawhat Member

    I've seen this type of practice in a number of firms. It's lazy financial planning in my opinion. From a compliance point of view, I'd be concerned about having a case on the books where we'd made the initial recommendation to take TFC and nil income FAD, but then proceeded to process income withdrawals on an execution only type basis. FAD isn't really a retirement income solutoin that lay clients can self-manage given the complexities involved.

    The FCA/FOS would also likely take a dim view as execution only business for existing clients is a bit of no no anyway and they might well take the view that what you've described above is advice rather than true execution only, meaning the firm is still on the hook as if they'd given advice. See this article for a good explanation as to why:

    https://atebconsulting.co.uk/news/execution-only-and-non-advised-business/

    Jonny (paraflex)
  • NathanNathan Member
    edited June 5

    Christine, what we have to remember is that it is the clients money and they can of course do with it what they want. BUT, as the adviser or advising company you are on the hook to ensure that what is being done is in the clients best interests, so whilst you will not be reviewing whether or not the withdrawal is suitable now, at the annual review you will need to confirm whether or not you think the pension has sufficient assets to meet the clients objectives and if not what they need to do to make it sufficient. Also, I think a withdrawal would trigger a suitability point anyway because we have to report any peaks or troughs in ongoing fees. I think it is a difficult one.

    One would assume that a review of whether or not the withdrawal is suitable or not would be done as part of your ongoing service and so I can't see why the client wouldn't agree to it being an advised withdrawal unless they already know that the advice would be no, in which case the client clearly doesn't value the advice and I would probably terminate the relationship.

    Obviously depend upon the circumstances, but those are my thoughts for what they are worth.

  • NathNath Member

    @parawhat said:
    I've seen this type of practice in a number of firms. It's lazy financial planning in my opinion. From a compliance point of view, I'd be concerned about having a case on the books where we'd made the initial recommendation to take TFC and nil income FAD, but then proceeded to process income withdrawals on an execution only type basis. FAD isn't really a retirement income solutoin that lay clients can self-manage given the complexities involved.

    The FCA/FOS would also likely take a dim view as execution only business for existing clients is a bit of no no anyway and they might well take the view that what you've described above is advice rather than true execution only, meaning the firm is still on the hook as if they'd given advice. See this article for a good explanation as to why:

    https://atebconsulting.co.uk/news/execution-only-and-non-advised-business/

    Agree with the above fully and Nathan's sentiments (although annual review wouldn't be needed if they aren't paying for an ongoing service). They are either a client or they are not. It appears they aren't if they don't pay for ongoing advice so why would you retain them on the books in the first place, just a liability you do not need IMHO. You are just creating work for yourselves and possibly having some sort of liability for no ongoing fee at all?

    You mention that the situation if the client calls for an unplanned withdrawal. Surely if they aren't paying for ongoing advice then all withdrawals are unplanned?

    If they were an ongoing client paying for our services and wanted an unplanned withdrawal we would look at the cashflow/financial plan and their particular circumstances and make a recommendation accordingly albeit, it could be an addendum report etc. As Nathan said, its the clients money and they can do what they want but if we feel its not in their best interests we will tell them.

    Sorry Christine, I know this doesn't directly answer your question regarding the suitability reports but we would always look at their circumstances and discuss/recommend and never do this on an ex-only basis (our network wouldn't allow it anyway!!)

  • A broader point on the above is what happens to 'orphan clients' on advised platforms?

    It seems that the platform market has split into two, D2C and advised, with many advised options providing limited access/control to the end client.

    Is there a view that if a client no longer wants ongoing advice (and is unwilling to pay for this), then it's the advisers' responsibility to transfer them to a platform/product that they can self-administer?

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