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Retirement advice must be suitable and appropriate

 

Conduct risk is being taken seriously by the Financial Conduct Authority, especially when it comes to pensions advice, James Dingwall has said.

 

The chief executive of Thistle Initiatives said: "The FCA's firm view is that the advice standards given by advisers are set at the top, around what the firm should be achieving as well as positive outcomes for consumers."

Mr Dingwall said the expectations were clear: that advice firms must be able to deliver good outcomes for consumers, and to evidence this. 

He said: "The evidence is achieved by collating really good information on their clients and following this through to really good advice.

"It is important that advice does not just happen at the outset, but that there is a continuation of a relationship throughout the client cycle."

Keith Richards, chief executive of the Personal Finance Society, said it was clear the FCA has already been focusing its attention on whether advice has been suitable.

In its latest thematic review on suitability, the FCA revealed that more than 93 per cent of cases it had reviewed met regulatory standards. 

However, 2.5 per cent were unclear but the concerns stemmed around 4 per cent which were not compliant.

Mr Richards said: "The FCA was concerned about potential risks of conflict of interest, in particular through defined benefit (DB) transfers, where the adviser's fee might still be contingent on a transfer itself."

Both said it was essential that retirement advice had to be suitable, not just for the client's sake in terms of outcomes, but also for the adviser's sake in terms of the risk to their business should the advice be found to have been unsuitable.

Therefore, there should be measures put in place by the advisory firm to ensure it is meeting the FCA's expectations around conduct risk and suitability.

Mr Dingwall said: "Conduct risk should be set up from the board, and how the firm wants to conduct with its clients around its advice process.

"A firm's advice process manual should set out exactly what advisers should be doing. You can't always have black-and-white approaches, but it is important this is absolutely clear and defines what type of advice you are going to give as an adviser to your client."

The need for complete suitability of advice is clear, especially when it comes to pensions and retirement planning, Mr Richards said. 

He commented: "We cannot underestimate longevity risk, fluctuations in markets, volatility, sequencing risk. We have people living longer now but this means there is a need for income, which is starting to be a major concern.

"Getting the advice right is absolutely crucial. But advisers are in a very strong position. The government mandates the need for professional advice in its own legislation.

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