Firms should not volunteer to offer pathways

Firms should not volunteer to offer pathways

Firms should not offer investment pathways to consumers if they do not have to by law, experts have said.

Speaking at the Association of Member-Directed Pension Scheme’s annual conference today (May 21), Matthew Baggott, compliance partner at Mattoli Woods, said there is no point in firms offering this service on a voluntary basis.

Mr Baggott said: "For firms exempt from investment pathway rules, there is no value for money or added consumer benefit in voluntarily adopting investment pathways."

As part of its latest work on retirement, the FCA proposed pension providers offer their non-advised customers a choice of investment pathways to meet their retirement objectives, which would be overseen by their IGCs.

The FCA proposed four pathways after it found many consumers were solely focused on taking tax-free cash from their pensions and were "insufficiently engaged" with deciding how to invest funds that moved into drawdown.

But providers with fewer than 500 non-advised clients a year will be exempt from providing the service. 

According to the FCA’s consultation document of January 28, firms must have an IGC in place before they are able to introduce investment pathways.

Geoff Buck, a committee member of the AMPS, told the conference that the cost of establishing an IGC ranged from £300,000 to £600,000 and so many firms may struggle to put an IGC in place.

Speaking at the conference Mr Buck said: "With investment pathways it worries me that the FCA is using a broad brush approach without a true understanding of how the self-invested industry operates."

When questioned whether or not their firms would offer investment pathways, 57 per cent of the conference’s attendees said they are exempt from the FCA’s proposed rules but are yet to decide if they will provide pathways.

This compared to 19 per cent who will provide investment pathways because they have to.

Meanwhile provider Scottish Widows, in its response to the FCA’s consultation, told FTAdviser that IGCs shouldn’t be in charge of overseeing investment pathways, as their members aren’t responsible for the product performance.

Peter Glancy, head of policy, pensions and investments at Scottish Widows, said these committees were well placed to make value for money assessments, but he doesn’t believe they have the appropriate expertise to oversee the design and performance of the investment proposition, including pathways.

The FCA proposed pathways should include an option for consumers who have no plans to touch their money in the next five years and for those who plan to use their money to set up a guaranteed income within the next five years.

The regulator also proposed an option for consumers who plan to start taking money as a long-term income within the next five years and those who plan to take out all their money within the next five years.

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