The FCA made the call in 2021 to pause/postpone their ‘assessing suitability pt2’ thematic review and have instead reworked it as a thematic review into retirement income advice.

    As we all know, pension freedoms have brought huge benefits to the financial advice/planning space, with the ability for more clients to enter fully flexible drawdown and with that, the ability for financial advice firms to work with clients far longer than they may have done previously. That said, the Pension Freedom rules were very hastily drawn up and issued and, as such, caught many (and I would suggest this included the FCA) on the hop.

    Eight years on from the 2015 launch of pension freedoms and the FCA has now decided it needs to understand how this market is functioning. As we all know, this is a complex area of financial advice/planning and the regulator at present has very little info or data on how this is carried out.

    While we had some warning at the end of 2022 that this was coming, about four weeks prior to the implementation date of Consumer Duty and somewhat out of the blue, along came a 40+ page and 87 or so question survey. Many firms missed it, many found it in their junk folders, a few completed it without realising its significance (finger in the air job). Thankfully, the vast majority of the 1,300 firms selected gave the survey the due care and attention it needed and boy, did it need some attention.

    Around a third of The Verve Group’s compliance firms were selected

    A handful found it easy to complete as their record keeping and back-office systems are robust, meaning the data was readily available.

    One firm was so concerned at ticking the ‘data not measured’ box, or ‘data not recorded centrally/require manual extraction from files’ boxes that they ended up missing the deadline while trying to extract said data.

    The larger percentage of firms went about collating what they could from the records they had, and the outcomes were somewhat alarming as they found:

    • They are unable to record all the data needed
    • They recorded the data, but it was input inconsistently
    • They recorded the data, but on an ad hoc basis or sporadically
    • They could have recorded the data, but have chosen not to
    • They don’t record elements that should really be classed as advice, but as its not new business, they had nowhere to record it

    This has therefore been a massive wakeup call, and not just for the firms who were selected.

    We’ve been sharing the survey and the feedback we’ve received from those who have maybe struggled to collate the data, and been supporting all our firms as to the level of detail they need in their record keeping. (Please contact me if you’d like to see a copy of this). The FCA has told us that through Consumer Duty, they intend to be a ‘data-led’ regulator, so it’s imperative that they look at what and how they record all advice provided and can have this in a reportable way, thus avoiding weeks of manually attempting to gather information needed for ad hoc requests like this.

    So… where do we go from here and what can we garner from the questions being asked?

    The main takeaway is that your Central Retirement Proposition is not about the investment solutions you utilise, which is a common misconception. The survey contained only 1 or 2 questions about the investment solutions. At this stage, the FCA is ambivalent about whether you use active, passive, in-house models, outsourced MPS or ESG solutions. What it clearly cares about is that the ‘right’ clients are in the ‘right’ solution and/or drawdown.

    Therefore, firms need to focus on their process. I have said a few times now that I would like to see CRP renamed as a Central Retirement Philosophy. Ask yourself the following questions:

    • What is your firm’s house view on how to advise on and run retirement income for clients? Does your risk profiling change?
    • How do you manage cash?
    • How do you attempt to mitigate sequencing risk?
    • Do you insist that a client has their minimum income requirement coming from secure means?
    • Do you always create a financial plan (and how much cashflow is incorporated)?
    • Will you advise clients with a low ATR, C4L and Knowledge and Experience to take a fully secure or hybrid form of secure income/flexi access?

    These questions need to be considered, and a CRP created, documented, and followed.

    In addition, do you record when clients ask to take a lump sum? Or when they increase or decrease their contributions or withdrawals? What about any ad hoc requests, that require action from the adviser and are likely advice?

    All the above are processes that most firms follow - but is it written down appropriately? Is it consistent across all advisers? And is it recorded in your back-office system? This may make all the difference to the information gathering you may have to participate in, in the future.

    We are now awaiting the FCA’s findings and the thematic paper on what it feels is and isn’t working, so do watch this space for any guidance on enhancements you may wish to make to your current proposition/philosophy.

    If anyone would like any further guidance on how to build a robust Central Retirement Philosophy or Retirement Income advice process, please don’t hesitate to get in touch. You can also find more information and download our free ‘At Retirement’ guide for free here.

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