Another day, another survey. This time as part of the Financial Conduct Authority’s thematic review into retirement income advice.
To be fair, we had due warning of the regulator’s intention to revisit advice in this area; I just could have done without it arriving a month before the Consumer Duty deadline and in the middle of our professional indemnity insurance renewal.
It is a two-way street, though, and advisers as well as the FCA should be able to learn from the results.
What the regulator needs to know
Previous FCA work in the area of retirement income focused on non-advised individuals and the decisions they were making. It is a logical step from there for it to consider what advised clients are being recommended to do, and if the advice given is likely to deliver better client outcomes.
Key concerns include the following:
1. Are the advice services on offer of sufficient quality?
In the early years, drawdown was largely restricted to wealthy individuals and advice was often given by specialist advisers. Since 2015, the market has expanded to include more average savers and most advisers now include it as part of their service.
The regulator needs to know this is being properly supervised and that advisers are sufficiently qualified and trained on an ongoing basis.
2. How are clients being advised and is this suitable for their needs?
The FCA is also concerned about the way in which advice services are delivered, not just the products being recommended.
Drawdown is still considered to be a high-risk investment, despite the fact it is in many cases simply an extension of the accumulation position, and clients are by definition likely to be older and potentially more vulnerable.
Fintech continues to develop at an amazing rate and should improve efficiency, however additional technology is not welcomed by everyone. The regulator needs to know how planning tools are being used and if they are intended to replace advice services or to augment them.
3. Are clients receiving the right advice and is it value for money?
Retirement income is not just about pensions and the FCA needs to know where drawdown and annuities sit in relation to other solutions such as later-life lending. Advised clients are more likely to have non-pension assets and, arguably, these should be used up first.
Delivering value is not just about fees, although they are clearly a crucial part of the advice service. Making the right choices about withdrawals and investments deliver considerable value and are not usually one-off decisions. Ongoing advice is easy to justify for decumulation clients, so long as the cost is related to the service received.
What advisers need to know
I mentioned the two-way street. Advisers were given three weeks to respond to this survey; I am guessing it will take a bit longer for the FCA to provide the feedback.
It was a stretch to provide some of the information requested in the survey and it would be very helpful to know what additional data we are likely to be asked for in future.
Questions I would like to be resolved are:
1. Do we need to consider specific CPD?
The survey asked if firms have any requirements for specific continuing professional development (CPD) in relation to decumulation advice. The answer, in our case, and I imagine many others, is that we do not.
It’s not that our advisers don’t undertake relevant CPD but, as there is no regulatory requirement, we don’t record it separately from other relevant CPD.
2. Do we need to start differentiating between FAD, PCLS withdrawals and UFPLS?
A single Sipp can support pension commencement lump sum withdrawal (UFPLS), flexi-access drawdown (FAD) and uncrystallised funds pension lump sum (UFPLS), making it difficult to record them in separate categories, even if our CRM system was set up to do it.
In our case, we can identify ‘income’ clients via the service level, however we do not include PCLS-only clients as there are no additional charges until an income is required. If the FCA would like this level of detail in future, we will need considerably more notice so that we can amend our systems to record it.
3. Do we need to record sustainability scores?
On a similar theme, the FCA is obviously keen to obtain feedback on how clients are dealing with the cost-of-living crisis, however the questions asked were impossible for us to answer on a bulk basis.
Each of our clients undergo a sustainability assessment as part of their renewal, however the recommendations are individually recorded and the only way to provide the information requested by the regulator would be to manually go through each individual file.
At the end of the day, surveys such as this one are necessary and I don’t begrudge having to complete them. That said, it would be nice if more thought could be given to how advice firms are going to have to collect it and how long it might take.
Fiona Tait is technical director at Intelligent Pensions
