The UK Financial Conduct Authority (FCA) has published an article with findings from a thematic review assessing firms who provide retirement income advice (RIA). The review assessed how effectively firms are providing RIA and the quality of outcomes for consumers entering decumulation, the phase when individuals begin drawing income from their pension savings.
The FCA has identified three key areas as crucial for achieving good client outcomes:
- Information collection and record keeping by firms. Firms are expected to gather comprehensive and relevant client information to assess suitability before making recommendations and maintain clear, up-to-date records. While most firms showed a good understanding of clients' objectives and circumstances, several failed to adequately document or collect key information in client files.
- Risk profiling. The FCA stated a client's risk tolerance can be different when moving from accumulation to decumulation. Therefore, firms should consistently assess both attitude to risk and capacity for loss to assist with identifying suitable solutions for their clients.
- Managing suitability of income withdrawals. The FCA expects firms to consider a clients' current and future income needs in retirement, with a focus on the sustainability of income withdrawals. While the FCA does not mandate how this is to be done, firms using cashflow modelling (CFM) or a withdrawal guide rate should ensure their approach is reasonable and tailored to the client's individual circumstances and objectives. The FCA has published findings on how firms can improve the quality of CFM.
The article has also set out examples of good practices and areas needing improvement in the above areas, encouraging firms providing RIA to review the FCA's advice and take appropriate action. Further publications on key issues affecting the financial advice and wealth management sectors are expected.
[View source.]
