Who is the client?

Who is the client

Again, who is the client?

While it is always best to start with a positive message, when writing a blog, sometimes it is difficult.

Another unholy pension mess lands on my desk, and 50% of the fund has disappeared (this time through fraudulent paperwork) the question of “Who is the client?” raises its head again.

The task appears more daunting than the Kobayashi Maru  as I try to piece together the chain of events that affected the investment since the client left the UK.

Leaving aside the trail of destruction from the Defined Benefit sign off that takes no account of most of the  client’s circumstances, or the mismatch of sold product to client requirements, there is another question- Who is the client?

Professional Investor

The majority of clients that advisers (in the UK, USA, Australia, South Africa and other EU locations) work with are retail clients that require personal financial planning advice. Many expats are taking advice on their pensions for the first time, although they may have been investing in the UK or USA for years. However, as much as they think they know how investments work, they are not professional investors and fail to recognise the additional risks of operating outside a regulatory environment where little enforcement exists.

We may be outside the UK, but for good practice, we can refer to the FCA handbook for guidance  (showing  EU MiFID rules). The rules are quite clear and, one would think, not relevant to most investors.

The individual investor meets the adviser, a fact find is completed, the client’s plans and aspirations are discussed, a profile of the client’s attitude to risk and ability to cope ( or not ) with losses are noted. Then, the client receives a report from the adviser with a recommended course of action and investment advice that purports to meet the client’s personal objectives. The report even has the address of the client. The investor takes the advice, secure in the knowledge that the investor is the adviser’s client.

So, who is the client? Well, when things go wrong, apparently not the individual whose pension funds are in trouble.

Professional Investors Only

FACT: Some products sold to expats, who transfer UK Pensions, are for professional investors only! This is particularly the case for “institutional client only“  structured notes.

You might think I am exaggerating, but nearly every structured product sold outside of the UK  (also known as Structured Notes) are deemed for Professional investors, and NOT RETAIL CLIENTS.  In fact the product factsheets make this clearm but the retail investors either never see these sheets or fail to notice the small print.

Some of these professional funds have failed spectacularly, leaving the clients with substantial losses, and where (as has happened with this particular client) these structured notes make up 50% to 100% of the client’s fund, they lose many tens of thousands of pounds that they often have no chance of earning again.

The client (the investor), upon finding out that they have lost a lot of money, then goes online to seek someone to review the original advice, finding out then that the investments have been placed in “professional only” investments.  In all cases I have dealt with, the investor was not aware of this.

The investor complains to the original adviser and then gets a shock. The investor, whose pension funds were invested, is told that they are not the client at all. So, again, who is the client?

The real clients are the SIPP or QROPS trustees as they are professional investors. Often the SIPP or QROPS trustee will deny any liability and say that it is up to the client to follow up with the adviser who provided the original advice. The adviser may have   “disappeared” or refers the client back to the trustees and the circle never completes.

We would say normally that, given the complexities of cross-border regulation and legal action, the investor usually has no comeback and is all the poorer for the experience. SEE FACT NOTE BELOW


We recommend that investors check the qualifications, regulatory permissions of your adviser   and make sure that the recommended funds are regulated, transparent and for RETAIL clients. Avoid structured notes for institutional investors and unregulated illiquid  funds which are are usually the same funds being promoted with unrealistic returns , long investment periods or “attractive” guarantees

While Captain Kirk may be able to overcome the Kobayashi Maru, even he may find the “Who is the client?” dilemma a frontier too far.

FACT NOTE: Who is the client?

If trustees in a regulated territory followed the advice of an adviser, they should have completed their own due diligence on both the adviser and also the investment proposed. If it later transpires that the adviser was never properly regulated to give the advice (many are not- particularly investment advice the trustees cannot hide behind any regulatory protection.

Indeed, if “regulated” trustees have followed the advice of a non-regulated adviser, and have failed to do the due diligence on the investment as the professional investor, we would suggest that it is worth pursuing a complaint.  Surely, this failure would make them liable for providing compensation- indeed should they not be personally liable?

(The reality is that most claims will end up being a waste of time and money – it is better to avoid the problem in the first place)

The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up to date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not except any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.

This article was published on 17th August 2017


Chris Lean

Chris is a Chartered Financial Planner who writes blogs and articles to simplify and explain some of the financial issues that affect UK expats. Subjects include; hot topics, regulation and the ever-changing world of finance.

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