The Financial Conduct Authority needs to issue guidelines to advisers to give them a steer on suitability and risk in the retirement ‘decumulation’ market in light of the radical changes announced in the Budget, a senior director at Moody’s has said.
In an interview with FTAdviser, Phil Mowbray, the head of retail services at Moody’s Analytics, cited previous guidance from the regulator on how advisers were assessing suitability and risk on investments prior to retirement, but said it has not issued anything specifically related to decumulation.
He said changes announced by George Osborne in March that will give retirees greater flexibility with their pensions mean that there is a need for specific guidance on at-retirement products and the risks and suitability challenges various may pose.
Mr Mowbray said at the moment most advisers are, as a result of FCA rhetoric and specific experience during FCA reviews, focused on annuities for most clients, which is set to change dramatically in the years to come.
In a previous interview with FTAdviser in March, Mr Mowbray had called for the FCA to completely split the nature of how it regulates retail investment advice to create a new category for decumulation advisers.
In particular, Mr Mowbray hinted that a less “stringent” regulatory approach is needed for at retirement advisers.
His words echoed comments from IFAs, including one who told FTAdviser his experience from regulatory reviews was that the FCA would preclude the vast majority of clients from using flexible drawdown and that even capped drawdown has to be “extensively argued”.
The FCA refused to be drawn on whether it will be publishing specific decumulation guidance as part of its proposals for retirement guidance, promised by the chancellor at the Budget.
A spokesperson said: “We are currently looking at what the guidance guarantee will look like but we are not specifically looking at decumulation.”
Mr Mowbray said: “I think the biggest challenge here is potentially the regulator. If you think what the regulator wrote about suitability - they did a whole consultation on how advisers were assessing and demonstrating suitability.
“I would say the outcome from that was really positive and most advisers thought the way the FSA went about that was positive. It was much more principals-based, it was trying to provide guidance and provided a bunch of examples of good and bad practice.
“It didn’t prescribe a set of rules and I think that probably went down well the way they did that and it definitely led to improvements.
“It would be a great benefit if the regulator could come out and provide guidance as to what suitability means to someone at retirement and if they could do that, then that would free up and enable advisers to exploit the benefits of this freedom and choice.”
In March 2011, the then Financial Services Authority published its finalised guidance on ‘Assessing suitability on suitable investment selection’.
It specifically called for measures including assessing a customer’s capacity for loss and identifying customers that are best suited to placing their money in cash deposits because they are unwilling or unable to accept the risk of loss of capital.
Mr Mowbray said: “It would help providers and advisers think about what appropriate default options would be, think about how they should be communicating those options to customers, help them understand what is it they have to make sure they have checked and validated before they make a recommendation.
“All those obvious things and for the regulator that is challenge as this is not a simple problem.”
