The Financial Conduct Authority has found some advice firms are not taking account of the needs of their clients and has told them to improve their retirement income advice services.
As part of the regulator’s thematic review into retirement income advice, the FCA found both good and poor practices across the market.
It found some firms operated in a way unlikely to lead to good customer outcomes by not considering a sustainable level of income to support retirement and some instances of firms not providing the right information to customers.
It also found in a small number of instances recommendations resulted in consumers losing guarantees or incurring unnecessary charges.
However, most advice files the FCA reviewed showed advice provided was suitable.
It also identified examples of good practice in the market with some firms showing they had considered their customers’ needs and designed their advice model in a way likely to lead to good outcomes.
The FCA said its findings were drawn from a representative sample of 977 firms who responded to a data survey, and a desk-based review of the advice models and files of a non representative sample of 24 firms.
Some firms had clearly detailed processes, specific training on decumulation and used a range of tools to help illustrate complex information for customers.
However, from its review the FCA found it was “apparent” not all firms were taking account of the differing needs of their customers in decumulation, as opposed to accumulation.
Sarah Pritchard, executive director of markets and international, at the FCA said: "Financial advisers have a vital role in helping consumers to make the right decisions now to support them long into the future.
“Decisions for consumers approaching retirement are complex, with the potential for risk. We want to support a sector that can help consumers access pension benefits, invest with confidence and have a sustainable income when they retire.
“Some firms are getting this right and making a real difference to their customers. However, others are not even getting the basics right and putting their customers’ futures at risk.”
The regulator also identified “considerable differences” between firms in advice file record keeping.
Out of the files of the 24 firms included in its desk-based review, 10 per cent were missing key documents, so could not be assessed according to the regulator.
Of the files the FCA was able to review, 67 per cent were found to be suitable.
However, it also said it had concerns about suitability on 11 per cent of files and 22 per cent had material information gaps meaning they could not be fully assessed.
The regulator said firms needed to ensure vulnerable customers were treated fairly after finding that while firms had thought about the needs of vulnerable customers, they were not implementing vulnerable customer processes in an effective or consistent manner in several areas.
The FCA highlighted several areas of improvement for advice firms which included income withdrawal strategy/methodology, risk profiling, advice suitability, control frameworks and firms readiness for consumer duty.
Pritchard urged firms to take on board its findings and review their processes and warned: “Where they do not act, we will act.”
alina.khan@ft.com
