The Financial Conduct Authority (FCA) has written to the chief executives of financial firms asking them to review their processes when providing retirement income advice.
Following its thematic review examining how firms were providing this advice, the regulator said it had found some examples where firms were not taking into account the needs of their customers.
This included where firms operated in a way “unlikely to lead to good customer outcomes” by not considering a sustainable level of income to support retirement and some instances of firms not providing the right information to clients.
Other highlighted problems related to insufficient risk profiling, inadequate information collection and a failure to deliver periodic reviews.
According to the regulator, most of advice files it reviewed showed the advice provided was suitable but, “in a small number of instances”, recommendations resulted in consumers losing guarantees or incurring unnecessary charges.
‘Vital role’
“Financial advisers have a vital role in helping consumers to make the right decisions now to support them long into the future,” said Sarah Pritchard, executive director of markets and international at the FCA. “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 added. “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.”
‘Mixed bag’
Responding to the review, Rachel Vahey, head of public policy at AJ Bell, said the FCA had found a “mixed bag” of results.
“The biggest fault the FCA has identified is on record-keeping,” she said. “It wants a much clearer picture of how customers’ individual needs are considered when reaching decisions on retirement income. It is not so much that wrong decisions are made – just the evidence backing them up is missing in the files.”
“The FCA wants to see evidence the right factors are being considered, and that those customers paying ongoing fees are getting a service back in return,” she added.
For his part, Stuart Ritchie, managing partner of the wealth manager GSB Capital, argued the issues highlighted by the regulator demanded “immediate attention”.
“With recent pension reforms introducing greater complexity and risks, ensuring compliance with FCA requirements is vital,” he said. “Firms must prioritise robust systems and controls, alongside monitoring outcomes to safeguard their clients’ interests.
“In my opinion, adhering to regulatory standards isn’t just about compliance; it is about upholding trust and delivering genuine value to our clients, especially at such a critical stage of their lives.”
To help firms the FCA has published a Retirement Income Advice Assessment Tool (RIAAT) and accompanying instructions. The tool shows how it assessed advice files and shows how firms can assess if their advice is compliant with the FCA’s rules, including Consumer Duty.
The regulator has also published a cash flow modelling article to help firms when undertaking modelling.
