It is unlikely to have escaped the attention of most UK advisory firms, but this morning the FCA published its long-awaited findings from its retirement income thematic review, accompanied by a Dear CEO letter.
The overall message is there are examples of good and poor practice, but there is still work to be done to improve how retirement advice is delivered by the sector. For some this will be surprising, for others, disappointing.
While I am still working through the thematic report, some early observations would be:
- Sixty-seven percent (67%) of cases were found to be suitable, leaving 33% as either unsuitable or unclear, with material information gaps. This is in contrast to the last time the FCA published the results of its assessments of advice firms’ suitability outcomes, which was back in 2017, finding that 93.1% of cases the sector was providing suitable advice. Is a 33% deficit acceptable? – given some of the poor practices identified by the FCA (e.g. no evidence of risk profiling, failure to capture necessary information such as expenditure) it seems that fundamental elements of the advice process are still lacking at some firms, which may be cause for concern to many and of interest to claims management companies!
- Just under three per cent (2.9%) of clients did not receive an annual review in 2022, despite paying for it. The FCA is undertaking wider work in this area, however their messaging here perhaps gives an indication of what might be to come, indicating that it may “force” advisers to compensate clients who have not received a service they expected.
- While the review gathered data before the consumer duty came into effect, some of its findings would suggest that some firms would be found wanting under the new regulation. The Duty holds a higher expectation, in particular in relation to meeting client needs. Some firms were not able to provide their annual review numbers, citing clients not responding as a reason – this is unlikely to wash now the Consumer Duty is in town, and the monitoring of the ongoing service should include relevant and accurate MI to identify (and act on) such trends.
- The treatment of vulnerable clients by the wealth sector is again being called into question with the FCA highlighting that firms are still not identifying or exploring potential client vulnerabilities. Vulnerability should now be an integral part of a firms DNA, and consumer duty further reinforces this point by expecting firms to act to avoid foreseeable harm. Firms who have not successfully integrated treatment of vulnerable clients into their advice process, may fall foul of the enhanced standard expected under the consumer duty as of today!
What should your immediate priorities be in response?
If you are an advisory firm providing retirement income advice, I would suggest that you:
- consider the findings carefully and with an open mind, there are likely to be areas where improvement can be made for all firms, for instance by focusing on the good and poor practice identified by the FCA in the review and overlaying this with the firms existing practices.
- consider your existing MI and refer to the questions in the data survey – if there are any gaps, seek to address these as soon as possible. The deadline for the first 'Consumer Duty Board Report' attestation is looming large, and data is the backbone of the good outcomes story.
- review the Retirement Income Advice Assessment Tool (RIAAT) shared by the FCA against your existing business monitoring tool and ensure any gaps of deficiencies are remedied as soon as possible.
- consider if there is a need to revisit any recently QA’d cases, particularly where you have identified significant gaps between your existing review tool and the FCAs RIAAT.
- let the FCA know if you identify any matters of which they might reasonably expect notice under Principle 11/SUP 15. In our experience of dealing with firms subject to regulatory intervention, it is always better to be err on the side of caution and disclose potential issues. The FCA takes such matters into account when considering what action to take with firms/individuals should an issue later arise of which they were not previously aware!
If you would like to discuss the outcomes of the RITR and how they may relate to your business, please reach out for an informal chat.
