The FCA’s thematic review of retirement income advice – A “mixed picture”
Announced in January 2023, the FCA has recently published its latest thematic review into retirement income advice. The FCA has published its report TR24/1 alongside a Dear CEO letter asking firms to make improvements to their processes. The FCA also published its Retirement Income Advice Assessment Tool (RIAAT) which the FCA used to assess suitability of files.
The FCA says it found a “mixed picture” when it came to advice models and outcomes but the overall tone from the FCA is less critical than some recent thematic reviews and Dear CEO letters. It is worth noting that whilst the FCA’s findings relate to retirement income advice they might also be relevant to firms providing recommendations on investments more widely.
Areas for improvement
The FCA identified the following as areas for improvement:
- Fact-finding: Firms were failing to get necessary information such as expenditure and future income needs to demonstrate advice suitability.
- Risk profiling: In some cases, risk profiling was not evidenced, was inconsistent with objectives and customer knowledge and experience, or lacked consideration of capacity for loss.
- On-going advice: Firms did not always document whether they were delivering an ongoing service and what that service included. At worst, consumers were charged for on-going services that were not being delivered.
- Cashflow modelling: Individual circumstances were not considered and a breakdown of the thinking process was not recorded.
- Vulnerable consumers: While firms have thought about the needs of vulnerable customers, they were not implementing vulnerable customer processes in an effective or consistent manner.
Steps firms should be taking
Firms should consider the following steps:
- Know your client: It is important this covers client needs and objectives, as well as other key areas like knowledge and experience, financial circumstances, and health.
- Your risk profiling approach should be retirement income ready: Assessing attitude to investment risk is insufficient. Firms need to consider how consumers feel about income security. One way to approach this is to assess how clients would feel about accepting loss and a reduced income. As ever, assessing capacity for loss is also crucial.
- Cashflow modelling: The FCA recognises that modelling serves a purpose. But that is only so long as the assumptions underpinning the modelling – in areas like inflation, charges, investment growth and life expectancy – are robust.
- Document everything: Anyone providing and charging for financial advice has to provide demonstrable evidence of not just the recommendation (the suitability letter) but the process of making those recommendations.
- Vulnerabilities: A one-size-fits-all approach to identifying vulnerabilities should be avoided. Adjustments in response could include: involving family/friends in advice meetings, home visits, more touchpoints and clearer documentation.
- The RIAAT: Firms can use this to understand the regulator’s approach to suitability and apply those lessons during file reviews.
Contact a pension disputes specialist
If you are affected by issues relating to your pension, please get in touch with our team of Financial Services Litigation experts by calling 0800 652 8025 or get in touch online for a free initial consultation.
Pastries and Pension Drawdowns
If you are a South-West based financial services practitioner and are interested in discussing pension drawdowns further, we would love to see you at our breakfast roundtable ‘Pastries and Pension Drawdowns’, taking place on Thursday 9 May 2024 at 9:30am in our Bristol office.
Laura Robinson, partner, Mamunul Wahid, associate and Meg Kirkwood, chartered legal executive will be discussing the FCA’s thematic review further, as well as looking at regulatory updates and current hot topics in the financial services industry.
Posted:
