The FCA has warned of deficiencies in information gathering and recording, risk profiling and managing sustainability of income withdrawals in its review of good and poor examples of practice around retirement income advice.
The notice comes in response to follow-on work that it did after its Thematic Review of retirement income advice, in line with its strategy of helping consumers and supporting firms to grow sustainably.
The regulator reviewed a sample of 28 firms. This included a desk-based review of firms’ advice models and governance as well as sampling advice files using the Retirement Income Advice Assessment Tool (RIAAT).
Examples of poor practice around information gathering and recording included:
- A firm not obtaining information about the client’s financial situation, including their assets, intended retirement date or their proposed expenditure in retirement.
- A firm not gathering necessary information, including the assets to be invested in, the potential charges and whether the client was able to accept the risks involved.
For risk profiling they included:
- A client sought advice on accessing a Pension Commencement Lump Sum. It was a reasonable step for the firm to fully assess the client’s CFL considering their retirement objectives and provisions available before making this recommendation. But this was not done.
- A client’s ATR had not been assessed in 3 years. In that time, they had retired, and their personal circumstances had significantly changed.
And for managing income withdrawals they included:
- A firm was unable to document the rationale for and the evidence underpinning its CFM tool’s underlying assumptions. We had concerns about whether this use of CFM would lead to consistently good outcomes for clients with different needs and objectives.
- Another firm projected that income withdrawals would lead a client to run out of money at age 76. No stress testing was completed to assess the impact on the client, nor was it clear whether their income requirement was solely the client’s or whether this was joint. If the client’s sole requirement, the firm appeared to have recommended withdrawals at a level they knew was unsustainable despite this being evidenced through their CFM.
- We observed some modelling which was only carried out to clients’ average life expectancy – thereby risking foreseeable harm.
“All firms involved have been given individual feedback. We sought corrective actions including the provision of potential redress where appropriate,” the FCA stated.
“We encourage all firms providing RIA to clients in, or nearing decumulation to read this in conjunction with the Review and our article on CFM and take any relevant action. We intend to issue further ‘bite-sized’ articles on other key issues impacting the financial advice and wealth management sectors and will share these at interactive events across the country.”
