Drawdown  

Providers risk giving advice with investment pathways

The FCA is proposing that providers have available at least two options of the four available for their clients.

But Royal London disagrees with this proposal and argued that providers should be required to offer solutions for all four objectives, or none at all. 

The spokesperson said: "Most consumers are not financially savvy and will not move to another provider.

"Providers are likely to only offer pathway solutions for those objectives they can make the most money from."

Royal London also stated that providers should be allowed to offer more than one investment solution for each pathway, to allow for different consumer risk profiles.

The spokesperson said: "Putting a consumer into a solution that does not correspond to their risk profile could cause them considerable harm or result in them losing out on future investment returns, both of which are undesirable outcomes and can easily be avoided."

On the other hand, Mr Cameron agrees with the FCA that providers shouldn’t offer multiple funds within each pathway, as it "would make the process far more complicated".

He said: "But this means providers will need to identify a ‘default’ investment risk level for all customers choosing a particular pathway. In practice, the customers choosing any of the pathways could have significantly different attitudes towards investment risk.

"This means providers have a difficult balancing act as there are risks both in offering a fund with too high a risk profile but also, as the FCA’s concerns over defaulting into cash show, in offering too low a risk profile.

"It is not clear how a provider could ‘err on the side of safety’ here. The FCA must give providers some confidence that they will not unduly second guess decisions reached here."

The FCA is planning to publish its final rules on this topic by the end of July 2019.

Paul Stocks, financial services director at Dobson & Hodge, said while inertia works for auto-enrolment, "trying to have a similar approach in drawdown opens up a larger number of potential outcomes which, once married with a range of risk profiles, is potentially starting to open up a maze rather than a pathway."

He added: "There is also a danger investors take guidance as advice – something which is dangerous.

"It is therefore critical that investors are signposted to advice and are also made acutely aware that anything offered by providers under a pathway isn’t advice and isn’t personal to them, and therefore the investor carries the responsibility and liability for their actions.

"Providers therefore need to be protected from the risks of a perception of advice having being given."

maria.espadinha@ft.com