The Consumer Duty requires firms to act in good faith, avoid foreseeable harm and support clients in pursuing their financial objectives. Consequently, firms must place greater emphasis on client interactions when relationships are ending.
Client relationships typically end for a few common reasons. On the client side, these include relocating, switching to a different adviser, no longer needing services or passing away.
On the firm’s side, disengagement may occur due to changes in client segmentation that alter or withdraw services, adjustments to regulatory permissions or professional indemnity coverage, difficulty in contacting the client to deliver services or an inability to meet a client’s needs.
Advisers must be able to explain to clients the risks and implications that ending the advice relationship could have on any recommended products or services
Establishing clear processes for these common scenarios ensures that, when the time comes, the situation is handled consistently and professionally. Here are some things to think about.
Set expectations at the start
To design an effective disengagement process, start by revisiting your client agreements to ensure they clearly outline what clients can expect from your services.
This should include what involvement is required from them, how either party can initiate an end to the relationship and the potential impact on any agreed services and charges. Your firm and its advice team should understand the risks and limitations of the products and services offered.
Care needs to be taken if terminating the relationship could result in the client losing access to their assets
Advisers must be able to explain to clients the risks and implications that ending the advice relationship could have on any recommended products or services.
Your disengagement process should help clients meet their financial objectives, such as by including appropriate notice periods in client agreements or enabling data portability.
Ongoing relationships
Ideally, all client relationships will last a lifetime, evolving to meet changing needs.
Your original recommendation and supporting client agreement should specify whether an ongoing service will be provided. If so, you should have documented processes to deliver the service consistently and compliantly in line with the agreement.
It’s essential clients understand their role in this engagement, such as providing consent for fund switches or rebalancing. If this engagement isn’t maintained over time, your process should include reminders to the client about the necessity of their consent for you to deliver the agreed service.
Your communication should be polite, concise and factual, specifying the date services will end and addressing any outstanding issues related to work in progress, fees payable or refunds
If they remain unresponsive, you may need to notify them about transitioning to a different proposition, such as a multi-asset fund solution or discretionary service, where consent is not required. Should the client continue to disengage, termination of the relationship might become unavoidable.
That said, care needs to be taken if terminating the relationship could result in the client losing access to their assets, particularly if the platform holding their assets only supports clients with an active advisory relationship.
You are responsible for informing the client of any relevant restrictions and impacts, such as the need to move assets within a specific timeframe or the possibility of being transferred by the platform to a different proposition intended for direct clients. These alternatives may involve different fee structures and choices.
At the end
Where it becomes necessary to terminate a client relationship, it’s important to communicate this decision in writing.
If you decide to offer services to executors, you will need to design a new service and update your client disclosure documents
Your communication should be polite, concise and factual, specifying the date services will end and addressing any outstanding issues related to work in progress, fees payable or refunds. If there is no work in progress, your communication should clearly confirm this.
What to do when a client dies
Client agreements end when a client dies, making it crucial to have processes in place for handling such situations.
While most financial plans include provision for managing a client’s finances upon their death, additional considerations arise when the business relationship shifts from dealing with the client to working with their family and personal representatives. In these cases, it’s important to ensure the appropriate contracts and agreements are in place.
With the client’s prior consent, involving executors, such as solicitors or family members, in estate planning discussions can help establish a relationship with them and clarify the services you can provide after the client’s death.
All services should be tailored to meet the needs of a target market, approved for use and regularly reviewed
You should also consider whether to charge for post-death services, either in an advisory or administrative capacity. It may be advisable to formalise agreements with the estate, detailing which services will continue after the client’s death and the associated fees.
All services should be tailored to meet the needs of a target market, approved for use and regularly reviewed.
If you decide to offer services to executors, you will need to design a new service and update your client disclosure documents. A new client agreement, signed by executors, should be in place before any services are provided.
These are fundamental principles of the Consumer Duty. Central to this is ensuring your firm’s services are being distributed appropriately. Any issues with service design or delivery should be reported back into your product governance and client support monitoring processes.
Having appropriate management information is essential to monitor outcomes, identify themes and to evidence that client services are being provided in line with Consumer Duty outcomes.
Sandy Scally is business risk consultant at Threesixty
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