'Advisers are not well equipped to deliver retirement income advice'

Speaking to FT Adviser, Northway discussed how advisers would need to have a refresher on how approaches to accumulation and decumulation differ. 

He said: “There is a wide dispersion of advisers. There are those that are extremely on the ball, aware of the risks their clients are taking, and of the specific elements that need to be fed into a plan, and are offering excellent advice.

“Then there are those giving very poor advice. And there is a fair chunk of the industry that has not accepted historically that you need to do something different in decumulation than you need to do in accumulation.”

Northway understood that in some cases an adviser would not need to provide a different approach to a client in decumulation but stressed if that was the case then the adviser needed to have a good reason why in order to justify this.

“What is crystal clear is that a one size fits all approach from an adviser firm is not going to work, it needs to be tailored. Both training and product innovation is needed in the retirement income space,” he added.

In terms of who should be offering that training, Northway said the onus was on the industry as a whole.

He said: “What consumer duty has done is it has thrown obligation right throughout the value chain and the same thing should happen in this space. 

"Anybody who is involved in the provision of products needs to be thinking about how these products are applied. And part of that is giving advisers the tools they need to make decisions around them, and not just focus on pure marketing output.”

What is crystal clear is that a one size fits all approach from an adviser firm is not going to work, it needs to be tailored.

Mark Northway, Sparrows Capital

Northway said this needed to be backed up by industry bodies.

He suggested for industry bodies to review the different qualifications that are needed for advisers at different stages of a client’s life. 

“Retirement income advice is a more complicated space and even just running somebody through crystallisation brings up a load of issues that an adviser in his first 20 years of advising a client wouldn’t have had to think about,” he added.

Risk of unintended outcomes 

Northway believed if advisers did not become well equipped to offer retirement income advice then this risked creating unintended outcomes for clients.

He said: “We're dealing with products that address the future and they are available on a spectrum with a guaranteed outcome at one end, and a very unpredictable set of outcomes at the other end of the scale. And there are benefits to the positioning on that spectrum. 

“What you don't want is a client saying that they didn’t understand. Historically a lot of advisers have effectively made risk reward decisions for their clients without the ability to explain the elements of those decisions.”

Northway felt there would now need to be a far greater assurance that clients understand the risks involved in their plan and why the adviser thinks these risks are appropriate for that particular client. 

Last month (April 30), speaking as part of a panel discussion at the FT Adviser Retirement Income briefing, Kate Tuckley, head of department, consumer investments at the FCA said the regulator was “actively” considering whether pensions decumulation should be included within the scope of its advice guidance boundary proposals.

Northway said this was a “pragmatic” approach and felt it was a good step forward by the FCA.

He said: “There is a significant amount of decumulation decisions being made on an unadvised basis at the moment and that's being made with the benefit of having very little knowledge in a lot of cases and very little guidance.

“The ability for a framework or a set of guidelines to be passed to unadvised individuals has got to be a benefit because these things can always be misused in a product sense by somebody over-egging the benefits, so it needs to be policed.”

alina.khan@ft.com