"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."
- Sarah Pritchard, executive director of markets and international at the FCA
The FCA has written to chief executives of financial advice firms asking them to review their processes when providing retirement income advice.
The letter comes following the FCA’s thematic review of retirement income advice which examined how firms were providing advice.
Most of the advice files the FCA reviewed showed advice provided was suitable. However, in a small number of instances recommendations resulted in consumers losing guarantees or incurring unnecessary charges.
The review identified examples of good practice in the market with some firms showing they had considered their customers’ needs and designed their advice model in a way likely to lead to good outcomes. The FCA says some firms had clearly detailed processes, specific training on decumulation and used a range of tools to help illustrate complex information for customers.
However, it also found some examples where firms were not taking account of the needs of their customers. This included where firms operated in a way unlikely to lead to good customer outcomes by not considering a sustainable level of income to support retirement and some instances of firms not providing the right information to customers.
Sarah Pritchard, executive director of markets and international at the FCA, said: "Financial advisers have a vital role in helping consumers to make the right decisions now to support them long into the future. Decisions for consumers approaching retirement are complex, with the potential for risk. We want to support a sector that can help consumers access pension benefits, invest with confidence and have a sustainable income when they retire.
"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."
Stephen Lowe, director at Just Group, commented: “Advisers will find today’s thematic review helpful in understanding how the FCA wants firms to modify their approach to meeting the needs of those clients who are focussed on the spending, or decumulation phase.
"In a nutshell, clients who are ‘spenders’ need a different approach to those who are ‘savers’. But the devil is in the detail and adjustments to cashflow modelling and risk assessment are highlighted as important areas that need focus.
“Prior work published by the FCA on DB retirement advice improvements has, as expected, been drawn on as an important evidence base to inform the FCA’s new publication.”
Nick Henshaw, head of intermediary distribution at Wesleyan, added: “The FCA has highlighted income withdrawals not taking individual circumstances into account as an area for improvement. It is critical that advisers have effective processes in place to determine clients’ unique circumstances, but they are only the first ingredient of delivering suitable retirement income advice. Establishing the right investment strategy to deliver a sustainable income through retirement is just as important, particularly during periods of economic uncertainty and market volatility.
“This includes making sure clients in decumulation are taking advantage of the full range of specialist funds available to them, many of which are designed to meet specific needs. Funds with a smoothing mechanism, for example, can deliver consistent returns to help protect against short-term fluctuations in value and can form a vital part of retried clients’ investment strategies.”
