Top four complaints against financial advisers and how to avoid them
No matter how skilled they are or committed to acting in the best interests of their clients, independent financial advisers (IFAs) are at the coalface. Helping their clients navigate complex investments, retirement plans, tax strategies and much more brings the risk of complaints.
The good news is that there are ways to mitigate your risks as a financial adviser, as long as you understand the most common complaints.
1. The fund switch that never happened
This is the most common claim we see. It’s not poor advice, but an administrative error and it’s easy for a client to be financially out of pocket.
In recent years, many IFAs have moved clients to cash or money market funds for the guaranteed 5% yield and to avoid market volatility but there’s now a trend for moving clients back to traditional investment models with higher exposure to equities.
It’s these types of switches, or failures to switch as agreed, which can easily lead to a complaint. It only takes markets to move sharply in the wrong direction for a client to experience a loss or miss out on safer returns.
The bigger your client’s portfolio, the more severe the loss and the more costly the complaint. Even a 1% loss on a £1m portfolio is an instant £10,000 financial loss. Imagine how disastrous if the loss is closer to 5% on £1m or if the fund switch goes unnoticed for longer.
2. An alleged mismatch of risk
Decisions made by IFAs have to match their clients’ risk tolerance and long-term goals. If they don’t, you could be accused of being overly conservative and causing investments to underperform, or overly aggressive causing significant losses.
3. Poor communication or lack of transparency
Financial planning is a long-term process that requires good communication and transparency. If you don’t keep your clients informed about the performance of their investments or changes that affect their financial plans, it’s easy to understand how they might become frustrated and make a complaint.
4. High fees and hidden charges
Excessive fees that erode a client’s investment returns over time are a frequent source of complaints, especially where clients feel misled or in the dark.
As an IFA, you have the expertise to understand and explain fees to your clients. Ensuring they know what they are paying and why will give them greater confidence in you.
What you can do to mitigate the risks
There will always be complaints against IFAs because IFAs are integral to sound financial planning.
With clear communication, transparency and a relationship based on a shared commitment to the client’s long-term goals you can ensure you are in the best possible position to avoid those complaints.
Be proactive, keep talking to your clients and never leave their queries go unanswered.
