About three years ago, the Financial Conduct Authority published the findings from a review of advice provided by financial advisers.
The headline results looked very impressive: 93 per cent of recommendations were pronounced suitable.
The FCA hailed this positive result as evidence that its Retail Distribution Review reforms had achieved their main objective of driving up advice standards.
Regulatory concern about quality increases
Sadly, the message from the regulator about how well financial advisers are doing their jobs has taken a much more critical tone since then.
This change of register was reflected in a speech on improving the quality of financial advice, delivered in September 2019 by Debbie Gupta, director of life insurance and financial advice supervision at the FCA.
- The FCA has said that advice on complex products is not consistent enough.
- It is important to get the basics right.
- Advisers have to check their clients' planned spending in retirement.
The message from the FCA now is that advisers are doing a good job advising on Isas and pension accumulation, but when it comes to more complex products and services, the quality of advice is much less consistent.
The regulator is therefore taking urgent action to enforce higher standards in these areas.
Of course, this message largely reflects the FCA’s well-publicised findings on defined benefit pension transfer advice, together with associated scandals involving non-standard (often unregulated) investments being sold to inexperienced retail investors.
However, advisers should not assume they are out of the firing line because they avoid DB pension transfers and steer clear of introducers pushing dodgy unregulated investments.
The FCA’s advice quality concerns are wider than that.
Retirement advice in the spotlight
You may have seen the FCA’s recent ‘Dear CEO’ letter regarding portfolio strategy for advisers, which sets out its main areas of concern for the advice sector, how it intends to tackle them, and the action it expects companies to take.
This letter tells us that the latest review of advice quality will focus on “initial and ongoing advice to consumers on taking an income in retirement”.
It also spells out what actions advisers need to take: “You need to ensure that the advice you provide is suitable, costs and charges are disclosed clearly, and that you act in the best interests of your clients. Conflicts of interest must be identified and, where they can’t be prevented, disclosed and managed.”
I have heard that the FCA has already kicked off its review by sending an information request to randomly selected companies.
These organisations are then required to provide a spreadsheet containing all their retirement income advice recommendations made over the past couple of years.
I do not know exactly what issues and concerns the FCA will be focusing on in its latest review, but I can make some educated guesses based on the regulator’s previous advice quality reviews, and the work Bovill has done with companies on retirement income quality.
Based on this, here are my tips on the issues you should be challenging yourself on, to give you the best chance of meeting the regulator’s expectations for retirement income advice.