Advisers and accountants often have a mutually beneficial relationship but can differ on investment thinking. Nicola Brittain finds out how to manage the situation if an accountant steps into 'adviser territory'.
Clients are likely to source information on the best way to manage their finances from any number of places before speaking to their financial adviser.
But what happens if they receive financial guidance from another professional, say their trusted accountant, which is contrary to their adviser's intentions? And what if that accountant is the IFA's professional connection?
Conflicting opinions on how best to manage a client's finances can arise around several issues – most commonly tax efficiencies – but can be particularly difficult for an adviser where they rely on an accountant for referrals.
What to do when accountants step into adviser territory
Beaufort Group managing partner Andrew Bennett explained that since Chancellor George Osborne extended tax relief on investments in venture capital trusts (VCTs), enterprise investment schemes (EISs) and even seed enterprise investment schemes, several of his clients have asked whether such vehicles should form part of their portfolio, following conversations with their accountants.
However, Bennett said that although there may be tax benefits over a period of time, many of these schemes are high risk and it is the adviser, whose job it is to ensure suitability, that would be liable if they were placed into the wrong type of scheme.
"Some of these conversations can be quite awkward because an accountant will have only looked at the benefits of the scheme. It is the adviser's job to look after a client's long-term interests as well as ensure that they are not personally culpable."
SIFA, a body dedicated to helping advisers form professional connections, said it had seen several examples of accountants providing potentially inappropriate advice to clients on financial matters.
Chairman Iain Muirhead said: "Accountants are not particularly risk averse (compared with solicitors) as far as professional connections go. In addition, there is quite a lot of overlap between the work they do and that of advisers. They spend a lot of time looking at tax savings schemes, and this can extend into investment and pension choices."
He said about three years ago SIFA was made aware of three or four examples of accountants recommending Polish property and other unregulated collective investment schemes (UCIS) for inclusion into client's self-invested personal pensions (SIPPs).
"Although these schemes can look enticing most advisers are very wary of them," said Muirhead.
"Accountants tend to be less aware of suitability requirements, risk assessments and other elements of the regulatory regime that are core to a financial adviser's business but this does not mean they aren't liable for advice provided in a professional capacity."
Muirhead added: "We had conversations with those accountants concerned but, actually, the advice they gave was irresponsible and in several cases we relinquished our relationship."
The Financial Conduct Authority (FCA) tightened rules around the promotion of UCIS in June this year, banning their promotion to anything but sophisticated investors and high net worth individuals.
The rules mean that, in the retail market, promotion of these products will be extremely limited. Muirhead believes the FCA's crackdown on UCIS has now filtered through to accountants as well as advisers. "We see this problem of inappropriate recommendation far less frequently now," he said.
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