Lee Halpin believes there has been a real step change from the FCA in terms of the support it is providing to firms. Here he explains more…
The Financial Conduct Authority’s (FCA) recent thematic review findings gave the advice profession plenty to think about when it comes to supporting clients in retirement.
What’s your approach to determining income withdrawals? Do you favour deterministic or stochastic modelling?
How do you evidence risk profiling and a client’s capacity for loss? Do you apply a blanket approach, or do you have a distinct approach for both accumulation and decumulation?
As is consistent with principle-based regulation, methods can vary to the same end.
But there are fundamental building blocks that are expected to be in place, in each and every case. And a fairly simply litmus test applies here – if it’s not in the file, then the assumption is it didn’t happen.
Are you confident all your records are up-to-date, sufficient (to include all relevant factors, with no missing information or gaps) and accurate (with no inconsistencies)? Can you use them to track whether you are delivering the expected level of service?
All of this and more you will undoubtedly have already considered when assessing your clients’ needs.
You’ll have designed your advice model in such a way as to deliver good outcomes no matter what stage of life someone is in.
You might even wonder why such questions are being asked as they seem obvious aspects of good quality financial advice.
It is one thing having robust processes, but it is the actual delivery that matters. What control framework could you put forward to demonstrate consistent delivery and consistent client outcomes?
Meeting expectations
What is clear is that this a particular area firms (more than half) struggled with meeting expectations.
It’s always worth reviewing processes to check they are still fit for purpose. No longer is it good enough to say something works because you’ve always done it that way. Of course, if you can evidence a method is still valid and you have good reasons for choosing it over others then that’s a different story.
The problem is the picture varies across different firms. As the regulator highlights it found examples of both good and poor practice across the market. In some cases, it even found inconsistencies within firms.
While the FCA would never go as far as to pat advisers on the back for a job well done, the Dear CEO letter accompanying the report appeared to strike a more positive tone than those issued elsewhere in financial services.
From discussions I’ve had with advisers, it’s clear you all want to do right by your clients. Good outcomes have always been the goal, long before any mention of the Consumer Duty.
It was good to see the regulator acknowledge the important role advisers play in helping consumers make the right decisions.
Retirement income advice is more important than ever as so much responsibility now rests with the individual to plan for their future.
If anything, the need for advice is greater than before. Pension reforms introduced more flexibility, but more flexibility also means more complex decisions and the potential for more risks.
Moving from accumulating wealth and assets to needing to access retirement funds can be a daunting prospect. There’s a lot to weigh up to meet immediate and longer-term needs.
The hope is those who turn to a financial adviser will be better equipped to deal with the challenges and complexities of pensions and investments.
And it is crucial clients get the right retirement income advice – if not, it is likely there will be limited scope to recover losses.
The FCA notes maintaining high standards is important especially as it looks to expand the market to new forms of advice and support as part of its Advice Guidance Boundary Review.
The word guidance got me thinking – we’re seeing more of this from the regulator itself. There’s been a real step change from the FCA in terms of the support it is providing to firms.
It won’t tell you how to run your business, that’s not within the regulator’s remit. But it has been offering up clear examples of what good practice looks like and equally what it considers to be poor practice.
This gives a decent indication if you’re hitting the mark and where there might be room for improvement.
The detail and quality of the guidance stood out to me. There’s been plenty of material and signposting to other useful documents too.
The clear areas of focus should enable firms to systematically review their existing processes, policies, systems and controls in a fairly efficient manner.
The data survey issued should also help firms consider the type of management information they collect.
The FCA has even developed a Retirement Income Advice Assessment Tool (RIAAT) – not just to add another acronym to your vocabulary but to help firms understand how it assesses the suitability of the retirement income advice provided to clients.
I’ll let you be the judge of how useful RIAAT is, or is likely to be, for your firm. But credit where it’s due this is a positive move from the regulator.
It’s got to be better to have something to work with rather than starting with a blank piece of paper.