‘The practices of many third-party financial service providers are at odds with Consumer Duty principles’

Financial planners play a crucial role in managing and safeguarding client assets.

However, at Wells Gibson, our experiences reveal a troubling trend: many third-party providers, including banks, discretionary fund managers, insurance companies and large national financial adviser firms, often fail to act in their clients’ best interests, particularly regarding seamless portfolio transfers and adherence to Consumer Duty principles.

Consumer Duty is a cornerstone of ethical financial practice, mandating that financial service providers prioritise their clients’ needs and interests.

This principle fosters trust and ensures clients receive fair treatment, transparent information and products that meet their needs.

Unfortunately, many third-party providers fall short of these obligations, creating barriers that hinder efficient client portfolio transfers.

Non-cooperation and delays

A pressing issue is the lack of co-operation from third-party providers when clients move their portfolios.

These providers often refuse to provide necessary information or employ delaying tactics, complicating timely and efficient fund transfers.

This obstruction frustrates clients and raises concerns about the providers’ commitment.

Delays in processing transfer requests expose clients to unnecessary risks and costs.

During prolonged transfer periods, clients’ investments may remain exposed to market volatility, potentially leading to financial losses inconsistent with their risk tolerance.

Additionally, clients may continue to incur high fees from their current providers, undermining their reasons for transferring portfolios.

Inappropriate asset exposure

Another significant concern is the misalignment of client portfolios with their risk tolerance.

We have identified cases where clients with low-risk tolerance are excessively exposed to growth assets.

This can lead to significant financial distress during market downturns, as these clients are not prepared to handle such volatility.

Additionally, many clients are exposed to alternative assets, which we do not advocate due to their complex nature and higher risk profile.

Such practices contravene Consumer Duty principles and disregard client welfare.

Clients trust their providers to manage their portfolios according to their risk preferences and financial goals. Breaching this trust undermines the integrity of the entire financial services profession.

The cost of high fees

High fees are another area where third-party providers often fall short of acting in their clients’ best interests.

We frequently encounter clients burdened with exorbitant fees that erode their investment returns.

Despite the clear mandate under Consumer Duty to ensure fair value for clients, many providers continue to charge high fees without delivering commensurate value.

These fees can significantly impact clients’ long-term financial health, particularly those with modest portfolios.

High management fees and hidden costs can eat into investment gains, leaving clients with lower net returns.

This practice is egregious given the availability of lower-cost alternatives that provide similar, if not better, performance.

The need for transparency and efficiency

Addressing these issues requires enforcing greater transparency and efficiency within the financial services sector.

Third-party providers must be held accountable, ensuring they act in their clients’ best interests. This includes facilitating timely and hassle-free portfolio transfers, aligning investment strategies with client risk profiles and offering fair and transparent fee structures.

Regulatory bodies play a crucial role in this process.

Enhanced oversight and stricter enforcement can help ensure providers adhere to their obligations.

Additionally, clients should be empowered with better information and tools to make informed decisions about their financial providers, including clear disclosures about fees, investment strategies and performance metrics.

A call to action

The financial services profession must address these deficiencies to restore and maintain client trust.

As professionals, we have a responsibility to advocate for practices that prioritise client welfare above all else. This means challenging third-party providers that fail to cooperate with portfolio transfers, expose clients to inappropriate risks or charge excessive fees.

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