RegulationJan 14 2021

Advisers urged to get head start on looming rule changes

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Advisers urged to get head start on looming rule changes

Prudential has urged advisers to use their time wisely and start preparing for any incoming rule changes early on.

This year is looking to be a busy year for advisers after many rule changes were pushed back due to the coronavirus crisis.

Vince Smith-Hughes, director of specialist business support at Prudential, has urged advisers to start preparing sooner rather than later to manage workloads.

For instance, during 2020 the regulator’s Retirement Outcomes Review (ROR) was deferred to February 2021.  

Although many of these rules apply to non-advised clients, Mr Smith-Hughes warned advisers have a significant item on their ‘to do’ list to be compliant.

He said: “Advisers will need to evidence that they have considered the investment pathway available to the client, and the suitability and value for money of any alternative personal recommendation made.”

The FCA proposed four pathways after it found many consumers were solely focused on taking tax-free cash from their pensions and were "insufficiently engaged" with deciding how to invest funds that moved into drawdown.

The pathways include an option for consumers who have no plans to touch their money in the next five years and for those who plan to use their money to set up a guaranteed income within the next five years.

The regulator also proposed an option for consumers who plan to start taking money as a long-term income within the next five years and those who plan to take out all their money within that timeframe.

Advisers must also brush up on environmental, social and corporate governance (ESG) investing as this area continues to grow and develop.

Mr Smith-Hughes said: “With seemingly daily fund launches on funds purporting to be ESG friendly, this one is not going to go away anytime soon, and nor should it. 

“Some of the legislation in Sustainable Finance Disclosure Regulation (SFDR) has been pushed back from the expected launch date in March [this] year, but I think this one where advisers would do well to get on the front foot in any event - at least ascertaining their client interest from outset, and also adding it into their client review proposition. 

“ESG is here to stay, and what’s more if explained properly makes for a compelling investment proposition.”

Back in May the regulator also confirmed its second review of the advice consumers receive around retirement income had been delayed by the coronavirus pandemic. 

The review is now tentatively set to pick up again between January and March 2021, but the FCA said the process could continue into the second quarter of 2021. 

Mr Smith-Hughes said: “This is hardly surprising given the amount of other work the FCA has been involved in elsewhere, but assuming things get back to normal quickly the suitability review may get back up the FCA’s agenda. 

“What can advisers do? Well one pointer on the direction of travel could be to have a look at the rules that came into force last year on DB transfers. 

“There could be some reads across very easily. Think workplace pension considerations, adviser charge disclosure and client understanding in particular.”

amy.austin@ft.com

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