The FCA will no doubt want to explore how the suitability status quo is holding up and whether further intervention – in terms of additional guidance or new rules – could be necessary.
In search of orthodoxy
Another likely driver for the review is the fact that, some eight years after the pension freedoms were introduced, there is still limited orthodoxy within the market on some of the key building blocks of good retirement income advice.
A wide variety of approaches exist for areas such as risk-profiling, cash flow modelling, calculating sustainable withdrawal rates, and structuring income withdrawal strategies.
And while it is unrealistic to expect there to be single “solutions” that all companies should be following, the multiplicity of approaches and the differing rationale underpinning them will be on the regulator’s radar.
The FCA will also be keen to explore the extent to which companies are reliant on third-party tools and software to help them deliver their advice.
Again, this is no bad thing: it is positive that companies seek the support of expert providers to help them deliver more complex parts of the advice process.
But the regulator will want to check whether companies understand the tools they use, have satisfied themselves that the outputs are fit for purpose, and are taking account of any limitations when they integrate them within their advice processes.
Potential for conflicts of interest
It is no coincidence that the FCA is kicking off its thematic review of retirement income advice at the point that its work on DB pension transfer advice nears completion. Part of this is practical: the regulator has limited resources for proactive work and so needs to plan accordingly.
But that is not the only area where its work on pension transfer advice is likely to have a bearing on the retirement income advice review.
It is no coincidence that the FCA is kicking off its thematic review of retirement income advice at the point that its work on DB pension transfer advice nears completion
The FCA has already noted the potential conflicts of interest from how some DB transfer advice companies charged for their advice and their ability to influence the nature, and the quality, of the advice given.
This led it to introduce a ban on contingent charging for pension transfer advice (except in very limited circumstances). Given this context, the FCA will be keen to explore whether there are similar risks for retirement income advice.
The focus will be on whether the revenue companies generate from delivering ongoing services to clients has any impact on the suitability of the solutions they recommend.