The Financial Conduct Authority (FCA) has written to the CEOs of advisory firms warning that it is concerned about the standard of retirement advice being given across the industry.
This letter asks CEOs to review their processes, and threatens action against firms to give poor advice to consumers. This follows a recent thematic review of retirement income advice, which looked at how firms were providing this service.
The review identified both good and bad practices in across the industry. While the regulator said most of the files it reviewed gave “suitable” advice, it was concerned about cases it had seen where firms were not taking into account the individual needs of customers.
This included cases were advisers were not considering the sustainable level of income needed to support people through their retirement, and some instances of firms not providing the right information to customers.
This review comes as there is increased focus on the services offered via workplace pension providers at retirement.
Many do not offer advice options, beyond signposting people to free ‘guidance’ services, such as the Government-backed Pension Wise, which evidence suggests is under-used. This means many people are taking retirement benefits with little advice or guidance.
The FCA is also consulting on the boundary between advice and guidance with the view of helping workplace pensions provider services that may address this ‘advice gap’.
FCA executive director of markets and international,Sarah Pritchard: “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.
We urge all firms to take on board our findings and review their own processes. Where they do not, we will act.”
Just Group director at the retirement specialist Stephen Lowesays: “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.”
Standard Life managing director for retail intermediary Chris Hudson adds: “Having access to the right advice and guidance is therefore just as vital as being in the right products to secure income needs at the various stages of retirement. The FCA is right to highlight the value of guarantees and the importance of income certainty in retirement. We already know that nine in 10 people are looking for income security in retirement – but they also want to hold on to an element of financial freedom and be able to access their pension savings flexibly.
“Today’s review provides an opportunity to assess whether the industry is currently striking the right balance and to ensure that the processes that inform advisers recommendations are creating the best outcomes for their clients.”