People are a bit of a problem, aren't they? Hospitals would be much, much more efficient places if they weren't cluttered up with patients. And a little cheaper to run, too. Public transport would be a more tranquil kind of service without the...er...public. Politicians' lives would be much less stressful if they didn't have all of those pesky voters to try and pacify. And as for IFAs and their clients...
A few weeks ago, I wrote a blogpost which was more about the kind of circumstance where the discerning Adviser would run for cover, instead of taking on a particular category of client. I'm sure you realised that, in this instance, the cause of the danger (to the Adviser) had perhaps less to do with the circumstances of the client, and rather more to do with how the regulatory authorities tend to deal with contexts which are anything other than blindingly simple. The philosophy of regulation is relentlessly reductionist, and appears only to function if real life can be defined in nice, neat terms. This is why if you ask the FCA for an opinion about a matter, you won't get one, and why the FOS will ignore most of a case-file, in order to focus on the bits that it likes. Ask the regulator a question, and very soon you'll get bogged down in hyperlinks - which could mean anything or nothing. Probably the latter.
Real life is not like that. Real life consists of people, and people are - generally - rather messy and inconsistent when it comes to their financial habits. They are not always wholly honest and transparent with their advisers. They may have hidden agendas, or have unhelpful attitudes derived from past experiences which didn't turn out well. Human beings are not neutral canvases of untainted nobility - they tend to come with a whole menagerie of personal habits and biases which interfere with a nice clean, efficient delivery model for financial advice. This is one of the reasons why Robo-Advice will never take off as a standalone service.
To make such an observation is not to be negative, but merely realistic. If human beings were malleable to the binary functionalities of a piece of financial-planning software, they'd be algorithms not human beings, so to expect them to somehow 'fit' into some narrowly-contrived planning process seems a bit unreasonable to me. This presents the well-meaning IFA with something of a challenge: if a new client presents with a set of messy, contradictory, inconsistent circumstances and demands, what do you do? You can't shoe-horn them into an algorithm which generates output within a certain 'safe' range, when their own financial parameters are all over the place. And, if the client doesn't 'fit' our preferred operating constraints, do we then refuse to play ball? That approach seems to view being human as a crime in and of itself.
In order for such a client to benefit from a financial-planning service requires the professional adviser to make value judgements, exercise intuition, set to one side his or her preconceptions, and come up with a solution which is nuanced, and where it may actually be impossible to get everything 'right'. And I mean theoretically right, as well as practically right. By this, I mean that a professional adviser might well preside over a planning exercise which leaves a client worse off in one area, in order to achieve a desired and acceptable improvement in another. So be it. It is unrealistic for IFAs to refrain from venturing out of a kind of nirvana where only win-wins are possible, twenty-four hours a day. Supplying a service to real-world, 'messy' human beings carries with it the real risk of a later grievance from the opportunist, or the unprincipled amnesiac - the kind of grievance that the regulatory framework is only too happy to rubber-stamp.
This is one of the reasons why regulation doesn't work in practice, and why it never can work. Reductionism never does. But it's not a reason why the IFA shouldn't effectively do his or her work. Here are a few good ways in which you should proceed:
Whilst you should be flexible when it comes to helping clients who find themselves in unenviable circumstances, that doesn't mean you should cut corners with your own disciplines. The messy world requires meticulous factfinding, risk-profiling and cashflow forecasting - long before you get to your product due-diligence. The indefensible client file is the one which has skimped in these areas;
The careful documentation of objectives, with an advisory commentary on their feasibility;
A dissatisfaction with the generic and general, and a favouring of the specific and particular (client objective of income vs client objective of monthly income of £X supported by a risk-modeled yield of Y% over a period of N);
The clear and explicit documentation to the client of all potential outcomes, not just the ones that give you a warm feeling;
A documented ongoing review service with the specific attention of addressing those residual areas of weakness which may even have been exacerbated by your primary advice;
Belong to a Network which recognises the value and integrity of principled, impartial financial-planning, and will back you to the hilt when the time comes.