With more and more clients moving into retirement now, and the potential for further acceleration of movement over the next few years, the FCA have decided to carry out a thematic review, asking for feedback from various providers, advisers etc.
The background to this is the flexibility afforded by pension freedoms that we've all enjoyed, and our clients have enjoyed, also creates risks that we need to be aware of and they're really interested in understanding how firms are managing these risks.
It's all about the quality of customer outcomes, and you also must bear in mind that at the present moment in time, it's coupled with the cost-of-living crisis, a rise in vulnerability and the upcoming Consumer Duty. So, they're putting this all together when they're looking at carrying out a thematic review in respect of retirement income advice.
There are two key pillars that you'll be familiar with.
1. Suitability – was the end recommendation appropriate for the client?
2. Disclosure - was the client informed about the recommendation, the fees, and risks in the correct way?
If you’ve already got your advice proposition in place, then have a look, again, at this area, and really consider the five key stages and bear these in mind.
1. Retirement KYC – understanding the relevant retirement objectives, i.e., income and wider circumstances. Is that in a good place within your business and are you comfortable with how that's carried out presently, and to the level of detail.
2. Risk - the client's willingness and ability to take risk. This relates back to the above objectives. Give that some consideration, certainly how you are assessing risk. But also, in line with that, capacity for loss will come into play, because, as you can appreciate, here, you're looking at clients with different capacity for loss, potentially, and different requirements in respect of essential income, discretionary income, etc.
3. Withdrawal Strategy – how the client is accessing their funds. Whether it be annuity or if you're looking at flexi access drawdown, how is a client accessing their funds, and what parameters do you have in place? And again, I would suggest that, as a business, you need to have parameters in place that everybody works towards. You can’t really have a situation where you have five advisers where everybody's doing their own thing, you really need to have standard processes in place, and then you work through from that point of view.
4. Investment Strategy - What's your investment strategy and what is best suited, taking into account the above?
5. Review - ensuring the client is on track, and taking action if they are not. So, again, the regular reviews, document when you do them, how you do them, and what's covered off, is really important, because there's clearly a lot to take into consideration, also, even the vulnerability of clients may have changed over the period of time, since you last spoke to them.
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