RegulationApr 22 2016

Annuity selling and equity income: the week in news

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Annuity selling and equity income: the week in news

Secondary annuities, EU regulation and the equity income sector were all at the top of this week’s adviser industry news agenda.

These, and another couple of the more interesting stories from the last five days, will now make up your bespoke and market-leading round-up:

1. Some clarity on annuity selling.

After months of speculation, both the Financial Conduct Authority and HM Revenue & Customs released consultation papers setting out how they plan to build a market that lets existing annuity holders access the pension freedoms.

First was HMRC, which on Wednesday morning revealed it expects around 300,000 people to get involved when the market opens next April.

There were a few surprises in the paper - the fact those receiving annuities to cover their pension from a trust-based scheme may now qualify - but also many unanswered questions - like nothing in the document dealing with how insurers will ever know about the death of the original annuity holder.

On Thursday the regulator attempted to fill in some of those gaps, with the main take-away from its paper being the proposal that providers will be responsible for checking retirees have received the government-mandated advice before they sell their guaranteed income.

Critics of the whole plan jumped on the latest details, with AJ Bell boss Andy Bell suggesting the new rules mean those who have had a bad deal first time round may receive it again when they look to re-sell.

However, secondary market cheerleader and Just Retirement communications director Steve Lowe commented: “The FCA have found some teeth - they are insisting comparisons are presented to customers to show value for money - they don’t do that for the primary market.”

2. EU-wide regulations debated.

This week saw collaboration between fund managers, platforms and advisers to reduce the burden of new Mifid II product rules, due to be implemented in January 2018.

For each product, investment firms will need to identify a potential target market and type of client whose needs, characteristics and objectives it will meet. If they require information on product sales to comply with the rules, distributors will have to offer it.

Tax Incentivised Savings Association technical director Jeffrey Mushens said a standardised way for advisers to send such information could be in place by the end of the year. “The new responsibilities on distributors are proving challenging, because we have never had to do it before and we want to ensure the burdens are kept to a minimum,” he said.

While many in the industry would rather not have to jump though such EU-imposed hoops, the prospect of shedding these regulations that could come from a vote to leave this summer was given a does of reality by several experts.

In order to roll back regulations like Mifid II or Solvency II, providers and advisers would also lose the ability to ‘passport’ products into the wider European market, it was pointed out, and even that would be contingent upon several years of torrid debate between the UK government and EU leaders.

3. Popular sector gets shaken up.

On Monday, the Investment Association paved the way for an overhaul of the UK Equity Income sector by launching a consultation on its disputed yield requirements, looking to introducing a more “transparent” way of monitoring funds’ production of income.

The document acknowledged increasing “controversy” over the need for funds to yield 10 per cent more than the FTSE All-Share over a rolling three-year period.

The following day, Carl Stick’s Rathbone Income fund became the first to fall to these stricter requirements, getting hauled out and into the UK All Companies sector from the start of next month.

As this week’s CPD-worthy Special Report pointed out, absolute return has been one benefactor of this year’s volatile markets and increased investor caution.

4. Suitability questions.

Meanwhile, research from FE this week suggested the majority of advisers use just one model portfolio service for all of their clients, a discovery which “shocked” the data firm and raised concerns consumers are being shoehorned into unsuitable investments.

These fresh fears over the suitability of model portfolios come five years after the regulator first warned about the post-Retail Distribution Review ‘panacea’ for advisers’ investment propositions.

They also came as news broke that the FCA was taking another look at advisers’ suitability reports, sending out letters to review a a “statistically representative sample” of 700 firms, in the wake of warnings in its recent Business Plan and the Financial Advice Market Review.

5. Less golf, more advice.

In no great surprise to anyone in the industry, the FCA also revealed this week that providers taking advisers to sporting or social events has very little benefit to the end client.

Findings from work it carried out over the course of 2015 on benefits provided and received by firms conducting Mifid business, showed such freebies were either not conducive to business discussions or the discussions could better take place without these activities.