The FCA’s retirement income advice review – key themes & takeaways

Reading the FCA’s thematic review into retirement income advice I am reminded of my grandfather. He arrived in the UK over one hundred years ago, penniless, but ended up with a successful tailor shop in Glasgow: every customer was different, every suit was bespoke.?

As a good tailor he would have recognised some of the key themes coming out of the review: one size doesn’t fit all, the importance of consistency, the importance of good record keeping.?

The review’s key conclusions and takeaways fall into four areas:

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The need to tailor advice?

The FCA found that some firms weren’t taking into account that their clients’ needs had changed because they were now in decumulation. When moving into decumulation it’s likely that a client’s capacity for loss and attitude to risk will change and will need to be reassessed.?

Key takeaway: Like my grandfather, cut the cloth to fit the customer.

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Consistency of advice?

The FCA places a lot of emphasis on the need for a firm to ensure that its advice processes are consistent. For example, they found a lack of consistency in the way some firms used cash flow modelling and withdrawal rates.

Key takeaway: Firms need to ensure that the framework within which their advisers operate is sufficiently detailed to ensure a consistent approach whilst also allowing for bespoke advice.

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Information?

Nearly a third of the files the FCA looked at had missing documents or significant information gaps. The FCA found, for example: expenditure analysis not properly recorded; and lack of detail on clients’ knowledge and experience of investments.?

Key takeaway:? As far as the FCA is concerned, if you don’t have evidence that you did something, it didn’t happen. This can be a real issue when complaints arise.

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Disclosure?

The FCA found a lot of disclosure failings including no explanation of the risk of capital erosion, the potential for future annuity rates to be lower, and that income levels might not be sustainable.?

Key takeaway: The FCA gets annoyed when firms don’t do the basics, and they consider proper disclosure to be a basic regulatory obligation.

Other key findings to consider

Advice charging model - the FCA didn’t find any evidence of excessive fees or product charges.?

Ongoing advice - a reminder from the FCA on the importance of providing quality ongoing advice where a client is paying for it.?

Consumer Duty - when reviewing advice files the FCA didn’t look at the requirements of the Consumer Duty as it was not yet in force. However, they noted that most firms were unlikely to be fully compliant with the Consumer Duty unless they take action to address the concerns identified.

Next steps

We recommend that firms conduct a gap analysis between the issues highlighted in the review and their own approach and act where needed. Our team of experts are able to support firms in this area, by providing independent assurance or implementation support.

As for my grandfather, such was the quality of the suits he made, 60 years after he retired, I still have a couple of them hanging in my wardrobe.

Clive Gordon Gordon, Senior Adviser, Sicsic Advisory