FCA review shows 'spenders' need different approach to 'savers'

This morning (March 20), the regulator published its retirement income advice findings, which highlighted good and poor practice across the market. 

Stephen Lowe, director at Just Group, said advisers will find the review “helpful” in understanding how the FCA wants firms to meet the needs of those clients who are focused on the decumulation phase.

“In a nutshell, clients who are ‘spenders’ need a different approach to those who are ‘savers’ but the devil is in the detail and adjustments to cash flow modelling and risk assessment are highlighted as important areas that need focus,” he added. 

Stuart Ritchie, managing partner at GSB Capital said it was “crucial” for advice firms to take on board the FCA’s call for a thorough review of their processes in light of the findings.

He said: “Adhering to regulatory standards isn't just about compliance but also upholding trust and delivering genuine value to our clients, especially at such a critical stage of their lives.

“While it is positive that some firms are prioritising their clients' needs and designing advice models for positive outcomes, it can be taken that others are falling far short, and potentially jeopardising the financial futures of their clients.

"With recent pension reforms introducing greater complexity and risks, ensuring compliance with FCA requirements is vital. Firms must prioritise robust systems and controls, alongside monitoring outcomes to safeguard their clients' interests.”

Although the review was based on data prior to the implementation of consumer duty, Dom House, lead consultant at Simplify Consulting said it showed the wider commitment to the delivery of customer outcomes through the duty. 

“The expectation for getting the level of personalisation correct is something that advice firms will rightly want to look at in the future.

"It is telling that decumulation options were not currently in scope of the simplified advice consultation, with the FCA believing it to be too complex for inclusion. Whilst those points are valid, it still creates the potential for poor outcomes for those, potentially with smaller retirement pots, who are not receiving sufficient advice at this crucial point in their lives.

"The findings also shine the light on the importance of not only identification of vulnerable customers, but translating that into the right level, and type of support that they need. In addition, customers need to be offered appropriate ongoing services, and are clear what they are receiving for the charges they’re paying,” he added.

Adhering to regulatory standards isn't just about compliance but also upholding trust and delivering genuine valueStuart Ritchie, GSB Capital

David Ostojitsch, director of government relations and policy at Pimfa said consumers needed to have confidence in navigating the retirement income advice market due to the “crucial role” it played in “a post-pension freedom environment”.

He said: “Retirement income advice and decumulation will remain an ongoing focus, which is one reason why we called for decumulation advice to be offered under a simplified advice model in our recent response to the advice guidance boundary review.”

Chris Hudson, managing director for retail intermediary at Standard Life, part of the Phoenix Group, believed the FCA’s review provided an opportunity to assess whether the industry was currently “striking the right balance” and to ensure the processes that inform advisers recommendations are creating the best outcomes for their clients.

Jonathan Hives, chief executive of First Sentinel Wealth said he welcomed the review highlighting that advice was “critical” when withdrawing from a pension.

He said: “A pension pot will not last forever, and withdrawing earlier than planned, coupled with market volatility and today’s longer life expectancy age in the UK, is a lethal cocktail. 

“Advisers have a duty of care to their clients, and part of that duty is warning a client about the dangers of taking too much money, too soon, from their pensions. These can be difficult conversations to have with a client, but this is exactly why they have appointed an adviser in the first place.”

Richard Parkin, head of retirement for BNY Mellon Investment Management said the review confirmed advisers have been supporting clients effectively in planning and managing their retirement. 

He said: "Almost 10 years to the day since pension freedom was announced, this review provides some thoughtful and practical guidance on how firms can enhance their approach to ensure they continue to deliver great outcomes for clients. There is clearly work to do in some areas, particularly around ensuring that the specific circumstances of retirement clients are recognised."

alina.khan@ft.com