FCA chief executive Andrew Bailey said the government and regulators are “showing so much more interest” in the investment industry in part bacuase of recent changes to the retirement market.
He said these changes had placed a greater responsibility on individuals to arrange their own long-term savings provision, resulting in investment managers being more directly involved in the sector.
He summarised the changes as the shift from the state and employers to individuals, the move from defined benefit to defined contribution pensions, and the introduction of pensions freedoms.
Underlying all of which, is the financial challenge of increasing longevity. These changes had, said Bailey, seen a “decline in more traditional life insurance products and the growth of the role of investment management in this area of long-term saving.”
Major conclusions
Bailey, who was speaking on Tuesday at the Investment Association annual dinner at Mansion House in the City of London, said he drew two major conclusions from the changes.
“First, the changes and the challenges are fundamental to society, and thus they inevitably engage public policy. In a way, they pitch investment management into the world of public policy far more than before.
“And, therefore, second, when you see the things that governments do, and we as regulators do, it’s worth remembering that there is a reason why we are showing so much more interest.”
This “interest” probably refers to the greater scrutiny which investment fees and charges have come under lately, resulting in calls for more transparency and for investment managers to justify charges that can heavily erode investment returns over the long-term.
Bailey’s comments also suggest that the investment sector could have a wider role to play in developing long-term savings products and solutions to help replace the declining use of annuities and more traditional life and pension savings products.
His comments come a few days after the FCA’s director of life insurance and financial advice, Linda Woodall, urged providers to do more to develop financial products and services for older investors and that take into account increasing longevity.
Importance of advice
Speaking about the challenge of providing products that can deliver reliable income in retirement, as annuities are designed to do, Anthony Gillham, co-investment director for Old Mutual Global Investors, said: “Given the complex factors to be taken into consideration when investing during retirement, a simple ‘off the shelf’ income solution may not be an appropriate long-term investment.
“Retirees not only need a sustainable, flexible income, they also need to focus on capital preservation, protect against the ravages of inflation and manage downside defence, to limit the potentially damaging effects of falling markets. Building a genuinely diverse portfolio that manages all of these risks is a minefield for any DIY investor.
“In our view, this complex situation only signifies the importance of investors at this stage of their financial journey seeking professional advice.”
