FCA publishes findings on how firms provide retirement income advice (firms providing personal recommendations on investments should also take note)

On 20^th March, the FCA published a report on the outcomes of its thematic review (TR 24/1) on retirement income advice.  In this report, the FCA sets out its key findings from the review, and identifies specific areas where it expects improvements from firms.  Firms are expected to take steps to meet its requirements on retirement income advice (referring to the examples of good and poor practice highlighted in the report as appropriate), including the consumer duty, and document how they have done so. 

Given the potential for unsuitable retirement income advice to result in significant harm which many consumers may be unable to mitigate (whether that be through suffering a reduction in income levels/funds running out too soon, potentially higher charges or investing in products that they do not understand or are not aligned with their risk profile), the FCA expects to follow up on the findings of the review more generally with firms involved in the retirement income advice market.  It will also be carrying out further supervisory work in this area to explore the scale of the issues identified and tackle any harms.  A Dear CEO letter has been issued in tandem with the report to draw to senior managers attention the FCA’s expectations and its planned further supervisory agenda.

The key focus for the FCA is on consumer outcomes – and the review revealed a mixed picture across firms – in several areas it was apparent that not all firms were taking account of the differing needs of their customers in decumulation, as opposed to accumulation, or in some cases had not provided the right information to support their customers to make informed decisions.  Record keeping was also highlighted as an area of inconsistency.  Further the need to ensure that vulnerable customers are treated fairly is highlighted, noting that the review showed that while firms have thought about the needs of vulnerable customers, they were not implementing vulnerable customer processes in an effective or consistent manner in several areas.

Whilst the findings relate to how firms provide retirement income advice. The FCA directs that they may also be relevant to firms providing personal recommendations on investments more broadly.

So, what are the key areas for improvement identified by the FCA?

When looking at where firms could improve, the FCA identified five key areas:

• the approach to determining income withdrawals was applied without taking account of individual circumstances, or based on methods and assumptions that were not justified or recorded;
• risk profiling was not evidenced, was inconsistent with objectives and customer knowledge and experience, or lacked consideration of capacity for loss;
• a failure to get necessary information about customers to demonstrate advice suitability;
• the periodic review of suitability, where relevant, was not always delivered to customers that had paid for ongoing advice; and
• inaccurate or insufficient records held to enable customer outcomes to be assessed and to track whether periodic review services were delivered,

with the Report setting out in each case the FCA’s expectations

What about the Consumer Duty

This review did not consider files against the requirements of the Consumer Duty since it was not in force at the time (albeit the FCA did look at how firms planned to comply with the Duty after the 31 July 2023 deadline for open book products). However, the FCA did note that it is “unlikely” that most firms would comply with some requirements of the Duty without taking appropriate action to address its concerns. 

You can find the Report here

You can find the Dear CEO letter here