Regulatory clarity on adviser’s selling practices in the new at-retirement landscape is much needed and will form a crucial part of the way the radical new freedoms operate in practice, according to Andrew Tully, pensions technical director at MGM Advantage.
Speaking to FTAdviser, he stated that the Financial Conduct Authority has been conspicuously quiet on some of the key areas.
“As we approach 2015 much work still needs to take place to make sure the reality of the new world reflects the often emotive impressions people have been given.
“The primary legislation is rapidly making its way through parliament, but after it is finalised there needs to be a variety of secondary legislation and guidance.”
In a paper last month on the signposting of guidance by providers, the FCA revealed it is to undertake a review of at-retirement sales and advice ahead of next April, considering particularly rules relating to drawdown and how to treat new ad-hoc lump sums.
The intervention followed warnings from a number of providers that rules which have not been reviewed for almost two decades would not be adequate to cope with the change in behaviours and the shift from annuities to drawdown for many mainstream clients.
In relation to the new uncrystallised funds lump sum option, the FCA said firms should treat this in the same way as drawdown until new rules can be devised. It is also reviewing risk and suitability issues around non-advised drawdown in the wake of consumer panel concern.
Elsewhere, getting the guidance guarantee up and running by the start of next April will be a big task, Mr Tully said, adding that the government should look to introduce a second line of defence for those that shun the free guidance offer.
“This is a crucial aspect, as those who don’t get any advice or guidance in the new world run many risks, any one of which could have a major impact on their financial wellbeing.
“If we consider the old world, taking advice was key to getting a good customer outcome. Those who shopped around by themselves or with help from a broker at least got a better income, with the people who simply rolled over with their holding provider most likely to get a poor outcome.
“This is an area where regulatory intervention is required. We need an additional layer of protection to minimise the number of people who end up being sold solutions that do not meet their needs or pay out significantly less than the competitive deals available in the market.”
Given MGM’s stake in the at-retirement market, Mr Tully also considered market figures showing there are many people deferring buying annuities or drawdown, waiting to see what new options appear in the new world.
“At MGM we are working flat out to develop a range of tools and support for advisers and clients who are waiting for new solutions,” he stated, adding that customers have been requesting both flexibility and guaranteed income.
“The challenging aim is to deliver these options in one product, in a cost effective way for clients and their advisers.”
Last month MGM confirmed it was launching a ‘retirement account’ product early next year, to allow individuals to blend products that provide security whilst retaining flexibility and the potential for investment growth.
It offered few details at the time, but it is likely the announcement will mean the firm will follow suit with others and launch a flexi-access drawdown option to sit within the account.
peter.walker@ft.com
