Advisers are bracing themselves for a universal rule change, and retirement income will need to adapt in light of the new demands brought about by the consumer duty.
In the FCA’s own words, the new duty sets "higher and clearer standards of consumer protection across financial services, and requires firms to put their customers’ needs first”.
It will consist of a series of outcomes the regulator will expect to see in relation to how products and services work, how they are priced, and to what extent consumers understand them.
It will affect all financial services firms when it takes effect in July this year, and will come in tandem with a retirement income review the regulator is currently carrying out, which looks at how advisers are delivering retirement income advice and the outcomes consumers are getting.
The latter will also assess how firms are responding to changing consumer needs as a result of the cost of living crisis.
It is vital that advisers position their retirement income advice in line with the regulator’s expectations as experts agree, the regulator will be watching this space. But what to do?
Fiona Tait, technical director at Intelligent Pensions, says the consumer duty requirements may seem familiar to many advisers, who might believe they are already compliant, but there is a twist.
She says: “Consumer duty requires advisers to focus on suitable outcomes for their clients, rather than simply the processes and procedures by which advice is delivered.
“Many advisers may feel that they do this already, but previous regulation has created an emphasis on covering the required bases rather than the final result.
“The duty turns this on its head and results in greater responsibility for advisers to tell clients what they believe they should do, rather than just delivering what they want to do, even if this message is unwelcome.”
She says in terms of retirement advice, this might mean “telling clients they have to spend less in the short term and making sure that they understand the consequences if they don’t.”
On the plus side, she adds, “it should also mean we can spend more time focusing on why we believe our recommendations do meet the client’s needs, rather than devoting a lot of space covering why other available options don’t if this is already clear.”
Stacy Mann, compliance manager at Lathe and Co, says the consumer duty represents a "significant shift" in culture and goes above the treating customers fairly principles. Despite this it might not mean significant change for some.
“[It] will require advisers to ask themselves questions such as, ‘would I be happy to be treated the way that we treat our customers?’ ‘Would I recommend my firm’s services to my elderly relatives?’