THE RESULTS ARE IN: FCA UNVEILS RESEARCH INTO RETIREMENT ADVICE

The FCA’s long-awaited review of retirement income advice has finally been published.

If you were expecting it to contain ground-breaking new guidance, we hate to disappoint, but it doesn’t. The good news is, it means if you have been heeding the regulator’s recommendations for the last decade, you have nothing to fear.

So, what’s it all about? In a nutshell, the results focus on providing clients with suitable advice, that takes into account their full situation and is communicated clearly and accurately. The emphasis is on full disclosure, so investors are able to make informed decisions and achieve good outcomes.

Sounds a bit like Consumer Duty doesn’t it! If you recall, the review was conducted before the legislation was applied and therefore, firms have not been measured against it, although the FCA does reference how the practises observed would stand up against the duty. The hot topics – ongoing advice fees, periodic reviews of suitability and vulnerability – are also addressed.

The results

The FCA’s findings are based on data collected from 977 firms who responded its survey and 24 firms who were selected for both a desk-based review of their business and actual file reviews. Given it was such a small sample of firms and files, the regulator’s comments are broad in terms of detail.

Strong evidence of good practise was found, with 67% of the files reviewed deemed suitable. This indicates the standards applied by the regulator appear to be attainable. Had these files and business models been seen through the lens of Consumer Duty, however, the results may have been more critical.

The FCA did note firms “…not considering a sustainable level of income to support retirement and some instances of firms not providing the right information to customers.” This is disappointing, as these principles should be at the heart of what all advisers strive to deliver.

Key findings

A number of areas were identified by the review as needing improvement and we can expect future guidance to focus on these:

• Income withdrawals were determined without taking individual circumstances into account, or by using methods and assumptions that were not justified or recorded.
• Risk profiling was not evidenced, was inconsistent with objectives and customer knowledge or experience, or lacked consideration for the client’s capacity for loss.
• There was a failure to obtain necessary information about customers to demonstrate the suitability of advice, including expenditure or other financial provision and future objectives or circumstances were not explored, including income needs or lifestyle changes.
• Where relevant, the periodic review of suitability was not always delivered to customers that had paid for ongoing advice.
• The control framework was inaccurate or insufficient to enable customer outcomes to be assessed and track whether periodic reviews were delivered.

Crucially, the FCA noted: “Some firms are getting this right and making a real difference to their customers. However, others are not even getting the basics right and putting their customers’ futures at risk. We urge all firms to take on board our findings and review their own processes. Where they do not, we will act.”

Next steps

The review provides guidance and examples of good and bad practise in the following 15 areas:

• Income withdrawal strategy/ methodology
• Cash flow modelling
• Risk profiling
• Periodic review of suitability
• Monitoring and reporting
• Information gathering
• Systems and controls/ reportability of data
• Design and delivery of advice process
• Adviser charging model
• Vulnerable customers
• Use of platforms
• Use of third-party tools/service providers
• Decumulation solutions/investment selection
• Governance and oversight of retirement income advice / T&C
• Conflicts of interest

We recommend familiarising yourself with the FCA’s findings and considering what changes, if any, you need to make to your business model.

The regulator has also published the Retirement Income Advice Assessment Tool it used when assessing files for the review. This is an excellent guide to the standards it expects of firms and can be used to gauge the levels of advice you are providing.

If you have any questions regarding the results of the thematic review into retirement income advice, or you would like help applying some of the recommendations made, don’t hesitate to contact us on (0161) 521 8641 or email: info@b-compliant.co.uk