The Financial Conduct Authority should focus on “sharpening up” guidance on drawdown advice instead of launching another lengthy investigation, according to an adviser.
Alastair Rush, principal at Echelon Wealthcare, said the FCA does not need to carry out an investigation into the suitability of pension decumulation advice but could instead sharpen up its guidance to ensure that advisers do not use drawdown as the default option.
Mr Rush believes many advisers have turned to drawdown by default as annuity rates plummeted instead of seeking out all the viable options in decumulation.
He said: “I don't think that advisers are actively telling clients to stay in drawdown to insidiously and solely earn more in fees. I do think though, that drawdown has become the default option and it might be the case that an investigation might not be needed, but instead, simply a sharpening up of the rules.
“The markets have been doing quite well for as long as many of us can remember and annuity rates have been poor so it might be the case that the advice thus far has been correct.
“An issue though, which is immune from that 'excuse', is differentiating the desirables from the essentials. We don't look long and hard enough at partial annuities to cover the core essentials (food, council tax, utilities etc), and then having a drawdown in orbit, circling around that, allowing them the flexibility that they might benefit from.”
The FCA yesterday (March 7) confirmed it is to push ahead with its investigation into the suitability of pension decumulation advice.
This comes after it raised concerns in February about consolidation in the advice market incentivising advisers to recommend products with ongoing fees, when they might not be suitable, in a bid to boost revenue streams.
However FTAdviser understands this probe is currently on hold due to the coronavirus and the regulator cannot say at what point it will continue at this stage.
Other advisers have welcomed the review but said the regulator needed to “dig deeper under the surface” rather than focusing on conflicts of interest.
Krupesh Kotecha, financial planner at Balance Wealth Planning, said: “The regulator making a start into looking at this is the right step.
“I hope they will look beyond a firms ‘conflicts of interest’ policy or other governance structures and look deeper into the culture of the firm and the client outcomes being delivered. Everyone says they put clients first – the only way to know for sure is to dig a bit deeper under the surface.”
He added: “I'd like to believe that with decisive action from the regulator this will put a stop to such practices. The financial services profession, on the whole, has been working very hard to gain the trust of the public, and it only takes a few rotten eggs to set everything back again.”
Rachael Hall, head of medical service at Sandringham Medical Financial Planning, said advisers could justify putting people in drawdown and charging ongoing fees if they could show added value.