Check Retirement Income Support Processes, FCA Tells Financial Advisers

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The Financial Conduct Authority (FCA) has urged financial advisers to review their processes when providing retirement income advice after finding that some firms are failing to take account of the needs of their customers.

In a letter to the chief executive officers of financial advice firms (published 20 March 2023), Lucy Castledine, Director for Consumer Investments at the FCA, asks financial advisers to ensure their advice process complies with FCA requirements on information collection, suitability and disclosures.

Firms are also encouraged to ensure they have adequate systems and controls in place and to monitor customer outcomes.

The letter comes on the back of the FCA’s thematic review into retirement income advice which examined how firms were providing advice.

Although the review found that many firms showed they had considered their customers’ needs and had designed their advice model in a way likely to lead to good outcomes, it also highlighted instances where some firms were not meeting the needs of their customers, potentially leading to poor outcomes.  

The FCA identified several key areas for improvement. These include:

  • The approach to determining income withdrawals was applied without taking account of individual circumstances, or based on methods and assumptions that were not justified or recorded.
  • Risk profiling was not evidenced, was inconsistent with objectives and customer knowledge and experience, or lacked consideration of capacity for loss.
  • Failure to get necessary information about customers to demonstrate advice suitability, including expenditure or other financial provision, or not exploring future objectives or circumstances, including income needs or lifestyle changes.
  • Periodic review of suitability, where relevant, was not always delivered to customers that had paid for ongoing advice.
  • Inaccurate or insufficient records held as the control framework to enable customer outcomes to be assessed and track whether periodic review services were delivered.  

Although the findings relate to how firms provide retirement income advice, the FCA is concerned it may also apply to firms providing personal recommendations on investments more broadly.

Addressing the above areas will help raise standards and deliver good outcomes for customers, believes the FCA.

The review is part of the FCA’s ongoing work to improve standards in consumer investment advice.

The FCA’s objective is to ensure consumers can:

  • Get the help they want, at the time they need it, and at a cost that is affordable.
  • Invest with confidence, understanding the risks they are taking, and the regulatory protections provided.
  • Access and identify investments that suit their attitude to risk and circumstances.
  • Be better protected from scams.

As part of this, the core features the financial regulator wishes to see firms deliver are:

  • Accessible support.
  • Diverse products and services.
  • A realistic approach to risk (ensuring consumers can distinguish between legitimate investment risk and fraudulent products).
  • Useful information for consumers, and appropriate protections where something has gone wrong.

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,” she continued.

“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.”

The FCA is encouraging all financial firms providing retirement income advice to:

  • Take steps to address the review’s findings within their firms.
  • Review the Retirement Income Advice Assessment Tool (RIAAT) and accompanying instructions, which shows how it assesses advice files and shows how firms can assess if their advice is compliant with the relevant rules, including the Consumer Duty.
  • Refer to its article on Cash flow modelling which outlines points to consider when undertaking modelling to help firms deliver suitable advice and aid consumer understanding.

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