Handle a client who insists on a different product or amount while still meeting your duties.
When a client wants to buy something you advised against, you let them, because it is their money. The questions that matter are what you do next and what the file shows afterwards.
A client-directed purchase is one the client chooses to make against your advice or outside your recommendation. Ravi has read about a technology fund that rose sharply last year. His adviser, Wei Ling, has looked at his fact-find and risk profile and recommends a diversified fund with a regular monthly amount. Ravi listens politely. Then he says he wants to put S$8,000 (an example figure) into the tech fund in one go, because it is his money.
First, make sure the client has heard the reasoning behind your recommendation as well as the conclusion. Clients sometimes push back because they think a recommendation is generic, or that you are cautious by habit. You answer that by explaining why your recommendation differs from what they want, in terms of their own situation.
Wei Ling uses Ravi's own figures. The S$8,000 is about two-thirds of his savings. His parents depend on him, and his emergency fund is not complete. She explains that a single-sector fund can fall a long way in a bad year. If this fund fell by a third at a time when he needed the money, he would be selling at a loss. For those reasons she suggested spreading the money across more of the market and investing over time.
Be just as specific about the risks of the client's choice. Cover concentration in one sector, the chance of large falls, how long the fund may take to recover, and what a fall would mean for the client's other goals. Use example amounts taken from the client's own figures, and say clearly that they are examples. Don't overstate the risks. The aim is an informed decision, and a client you have frightened into agreeing has not made one.
Then ask whether the client still wants to go ahead. Many clients change their mind once they see the risk in their own numbers. Some don't, and that is their right. Ravi goes ahead. He says he has followed the sector for years, he is willing to take the risk for a higher return, and he won't need the money for at least ten years.
If the client goes ahead against your advice, the record must clearly show three things: what you recommended and why, what the client chose and their reasons, and the warning you gave. Write the client's reasons in their own words and the warning in yours. Write the note on the day, while you and the client both still remember the conversation.
The note is short, but every part of it matters. Someone who was not in the room should be able to read it and understand what was advised, what the client decided, why, and what the client was warned about. Wei Ling's note records:
the recommendation, a diversified fund with a regular monthly investment, and its basis in the risk profile and fact-find (emergency fund incomplete, parents dependent on the client's income) the client's choice, an S$8,000 lump sum in a single-sector technology fund the client's reasons, in Ravi's own words the warning given: the fund is concentrated in one sector and can fall sharply, and the amount is about two-thirds of his savings while his emergency fund is not complete that the client confirmed he understood and wished to proceed
Some firms also ask the client to sign a separate acknowledgement. If yours does, get it signed and still write the file note. A signed form shows that the client agreed to something, but it does not record what was said.
Most firms have a specific process for purchases made against advice or outside the recommendation. It may include a separate form, a client declaration, or a supervisor's sign-off before the case is submitted. These cases carry more risk for everyone involved, so firms often check them more closely. Follow the process every time, including when the client is impatient to get it done.
Also check whether your firm allows the transaction at all in the circumstances. Some firms limit what they will process outside a recommendation, or add steps for certain products or client groups. If you are unsure whether the transaction is allowed, ask compliance before the client signs.
A client-directed purchase can look awkward on file. For example, the risk profile may say moderate while the purchase says aggressive. Never go back and change the fact-find or risk profile so that the client's choice looks like your recommendation.
Falsifying a record means changing it after the event to make it fit the outcome. It hides the real decision and removes the evidence that you gave a warning. If it is discovered, a client choice you could have defended becomes a serious problem for you and for the firm.
You may add a missing note, dated today. You may never go back and alter facts that were recorded earlier, which is called backfilling facts. Lesson 5.4, Audit three of your own files, comes back to this rule.
The honest file is the safer one. A file with a clear recommendation, a clear warning and a client who chose differently is what a reviewer hopes to find. A rewritten file is the one that fails review.
In the activity below you write that note for a client who chose a higher-risk product than you recommended.
Write the file note you would make for a client who bought a higher-risk product than the one you recommended.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).