FCA asks advisers to review retirement income advice processes

The Financial Conduct Authority (FCA) has written to the chief executives of financial advice firms asking them to review how they provide retirement income advice.

The move follows the regulator’s thematic review of retirement income advice which examined how firms were providing advice.

According to the FCA, this 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 that could likely lead to good outcomes. Some firms had clearly detailed processes, specific training on decumulation and used a range of tools to help illustrate complex information for customers.

However, the regulator also found examples where firms were not taking account of the needs of their customers. This included cases where firms operated in a way unlikely to lead to good customer outcomes by not considering a sustainable level of income to support retirement, as well as some instances of firms not providing the right information to customers.

Most of the advice files the FCA reviewed showed advice provided was “suitable”, it stated. In a small number of instances, however, recommendations resulted in consumers losing guarantees or incurring unnecessary charges.

Executive director of markets and international at the FCA, Sarah Pritchard, said that 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,” Pritchard added.

“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.”

To help firms, the FCA has published a retirement income advice assessment tool (RIAAT), which shows how it assessed advice files and how firms can assess if their advice is compliant with the regulator’s rules, including the Consumer Duty.

The FCA has also published a cash flow modelling article to help advice firms when undertaking modelling.

In response to the FCA’s letter, director at Just Group, Stephen Lowe, 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.”

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