By Roy Vickery, Senior Manager - Retirement Propositions, Scottish Widows
Minimising risk within a changing regulatory environment.
Good governance arrangements – both by providers and advice firms – are crucial for achieving the best outcomes for clients. “Governance” can refer simply to investment governance, but it can also cover all aspects of a firm’s activities: from giving advice, writing suitability reports, training and competence to recruitment.
Even falling very slightly short of the standards laid out by the regulator can cause difficulty for firms. In our current climate of regulatory consultations, discussions and change, simply keeping up to date poses a major challenge.
Some regulatory issues
Value for money and retirement income were key themes in the FCA’s business plan for 2017/2018. Other key regulatory and industry issues that are likely to have an impact on adviser firms in 2018 and beyond are:
• FCA Platform Market Study and Asset Management Market Study: the FCA is looking into the role that advisers play in the investment chain, alongside issues such as vertical integration.
• Defined Benefit Transfers Consultation CP17/16: the FCA has expressed concerns about the suitability of advice and recommended products.
• FCA Retirement Outcomes Review: whilst this currently focuses on non-advised clients, recommendations and findings could affect advised clients, too.
• Future approach to customers: in its recent report on vulnerable customers, the FCA highlighted its expectation that firms should treat vulnerable customers fairly by providing a flexible and tailored approach.
• Increasing SIPP complaints: complaints about SIPPs to the Financial Ombudsman Service are still on the increase. Most appear to relate to unregulated investments. However, advisers and providers may end up paying through the FSCS.
• FCA Effective Competition in Non-Workplace Pensions DP 18/1.
These could all become a drain on advice firms’ valuable resources. So this is a good time to review your governance processes. Small changes now could save a lot of time and money later.
£2 trillion in UK schemes
Over £2 trillion is currently held in UK pension schemes (source: Spence Johnson, Market Intelligence 2016, UK Defined Contribution). A good portion of that will make its way into the retirement income space over the next few years, and the FCA is showing a keen interest. Reviewing your retirement advice proposition and processes now may save you both money and resources in the future.
We believe a structured, governed process to investing in retirement is essential for the majority of firms. If you don’t yet have a Centralised Retirement Proposition (CRP), developing one now could be very timely. Centralised Investment Propositions for clients still in saving have been around for a while, but will the FCA consider them appropriate for drawdown clients?
The benefits of a CRP
A good CRP will help you to:
• demonstrate good governance to the regulator
• improve your business efficiency
• reduce business-associated risks