Fears advisers are wrongly shoehorning pension clients

Fears advisers are wrongly shoehorning pension clients

Advisers have been warned against shoehorning clients into decumulation strategies based on accumulation risk profiles following the regulator's latest Retirement Outcomes Review.

Lawrence Cook, director at Thesis Asset Management, urged advisers to take note of the FCA's latest retirement outcomes consultation, published last month, despite it applying to ‘non-advised’ consumers.

The paper is seeking feedback on proposals to require drawdown providers to offer non-advised consumers a range of investment pathways.

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Mr Cook said advisers should also be considering these range of investment pathways.

He said too many investment solutions used in accumulation were being routinely used by advisers in different pathways in decumulation.

Pathway solutions should be considered by advisers alongside other options available when providing recommendations for clients' retirement needs, Mr Cook said.  

He said: "Advisers might be thinking this doesn’t impact me as CP19/5 is all about non-advised consumers.

"The FCA is quite explicit that for advisers they must demonstrate that investment pathways have been considered in pension drawdown suitability reports, echoing what Rory Percival said four years ago.

"In 2015, former technical specialist at the FCA Rory Percival outlined that if the client gets a risk profile of three in the accumulation stage [and]… you are giving them a three in decumulation then that might not be right for them because of sequencing risk and pound cost ravaging.

"As a result, while some advisers may be thinking that CP19/5 does not affect them directly, they are missing the point."

Mr Cook said the advice and investment solution must reflect the specific needs consumers have in decumulation rather than assuming the risk profile of the individual in accumulation remained the same in retirement.

Mr Cook has also questioned what asset managers and advisers were doing in response to the FCA's concerns around retirement income.

He said: "I worry when I speak to advisers that the decumulation risks are not yet widely understood.

"Until they demand new solutions, innovation will be slow. That is why as an industry we must not wait, and instead innovate to support what clients need now."

Mr Cook noted that the proposed wake-up packs to help prevent non-advised clients mostly investing drawdown money into cash should please advisers.

He said: "Clearly any investor with more than a very short-term time horizon will struggle to deliver any reasonable investment return with just a strategy.

"Its ideas about wake-up packs, and prompting of consumers to make more informed decisions, are most welcome.

"Advisers should not to be concerned this is taking away their job. If anything it will heighten consumers' appetite for advice."

But Greg Kingston, group communications director at Curtis Banks, felt Mr Cook's concerns were unjustified.

He said: "Advisers understand decumulation risks better than some may think.

"Decumulation is an industry term; advisers deal with their clients’ retirements, and do that by looking at specific individual client needs and applying individual solutions to them."