The FCA has reported back on its thematic review into Retirement Income Advice, drawing on an extensive survey sent to 1,275 firms and also desk-based reviews including samples of advice files from 24 firms.

Alongside the thematic review report, the FCA shared a ‘Dear CEO’ letter, a Retirement Income Advice Assessment Tool (RIAAT) to help advisers assess if their advice meets FCA rules, and an article on cashflow modelling. You can find links to these at the bottom of this page and throughout the article.

While there’s a lot to unpack, the findings on balance are positive with the FCA pointing to many examples of good practice alongside a list of areas for improvement. The overall tone of the Dear CEO letter is less critical than some recent Dear CEO letters. But as with any regulatory review, the FCA found areas for improvement – some quite specific and others with potentially wider ranging application.

Here I’ll summarise and address key points that stand out from the review.

What’s covered in the review?

The review is split into 5 chapters:

  1. Introduction and five key areas for improvement
  2. Key findings: Centralised Retirement Proposition (CRP)
  3. Key findings: advice files
  4. Other findings
  5. Consumer Duty

Chapter 1: Introduction and five key areas for improvement

Here, the FCA sets out the reasons for and aims of the review. It describes the characteristics of the retirement income advice market and the regulatory framework within which it operates, before setting out key findings and areas for improvement.

We knew from the 87-question survey undertaken last year that the FCA views the retirement income advice market as particularly important. The complexity facing consumers has risen sharply with the growth of Defined Contribution and the introduction of pension freedoms. The thematic review looks at the market from many angles and in considerable detail and the report reminds advisers just how extensive the FCA’s expectations are.

The Dear CEO letter highlighted five key areas for improvement which are expanded on in the main report:

  • Income withdrawal strategy / methodology – whether firms use cashflow modelling or a withdrawal ‘guide’ rate to recommend sustainable income levels, the FCA expects the methodology to be adequately tailored to the individual’s current and future income needs, circumstances and objectives. Methods and assumptions should be justified and recorded. 
  • Risk profiling – this covers both attitude to risk (ATR) and capacity for loss (CFL). The FCA expects both to be evidenced and be consistent with objectives and customer knowledge and experience. The FCA expects ATR and CFL to change as a customer moves from accumulation to decumulation, so both need reassessed at that point. 
  • Advice suitability – firms’ fact finding needs to be complete to demonstrate advice suitability. The FCA raises particular concerns over instances of losses of guarantees, penalties being incurred and unnecessary tax. Other gaps found included failures around dealing with vulnerable customers, incomplete expenditure analysis or not exploring future objectives, income needs or lifestyle changes. 
  • Periodic review of suitability – if ongoing advice is being paid for, firms should make clear what is included, the associated charges and how customers can cancel. Firms should track and monitor when review meetings are due and bearing in mind a higher likelihood of characteristics of vulnerability amongst decumulation customers, proactively ensure services are provided. Firms must not charge customers for services that are not delivered. 
  • Control framework the desk-based review identified examples of inaccurate or insufficient records including around ceding schemes. The FCA expects firms to have a comprehensive advice register including details of types of services offered and associated charges. 

Chapter 2: Key findings: Centralised Retirement Proposition (CRP)

This includes a more detailed review of the use of CRPs and of withdrawal guide rates. For the latter, the FCA expects any ‘standard rate’ to be considered against aspects such as the client’s age. This chapter also expands on cash flow management, risk profiling, the periodic review of suitability and the control framework.

Chapter 3: Key findings: advice files

This explains the findings of the review of 100 advice files from 24 firms. While the survey was representative of the wider industry, these 24 firms weren’t necessarily so. Some files had missing information, but 67 were assessed using the RIAAT. Of those, the FCA found that 45 were suitable, 7 raised concerns over suitability and 15 couldn’t be fully assessed because of information gaps. This section includes several examples of poor practice, some quite specific.

Young Asian businessman using smartphone on curving white stairs

Chapter 4: other findings

This reflects the other questions in the survey split into two parts – the first on the design and delivery of advice processes. This looks at the nature and scope of advisory services and if these and Adviser Charging models are appropriate. Platform selection for decumulation clients is also covered. The use of third-party tools and service providers requires a focus on due diligence and oversight. And decumulation solutions and investment selection should be aligned to decumulation customers’ risk profiles.

The second part on governance and oversight covers training and competence, adviser incentives and conflicts of interest. An analysis of the treatment of vulnerable customers showed 952 out of 958 firms had implemented identification policies, but for almost half of firms it wasn’t clear how they would monitor outcomes.

Chapter 5: Consumer Duty

This includes a reminder of the Consumer Duty requirements with a few specifics around retirement advice. As the survey underpinning the review was carried out in H1 2023 before the Consumer Duty went live, the FCA hasn’t assessed findings against Consumer Duty. However, it says it’s unlikely firms will comply with the Duty if their approach includes any areas of concern covered in the review.

Of course, since the Consumer Duty came into force, firms may have made changes to areas of their business. So areas of weakness the FCA points out such as defining target markets, service design, communications and serving customers with vulnerabilities may already have been addressed. 

Evidence – an overriding theme to address

As often applies with FCA thematic reviews, many of the concerns relate to a lack of evidence, incomplete files or weak record keeping. Under the Consumer Duty, it’s not good enough to be delivering good outcomes – firms need to be able to evidence this including for customers with vulnerabilities.

Reflecting on the review, you’ll need to look at your client information gathering, advice files, due diligence records on third parties and wider management information. The FCA expects all firms to have a comprehensive advice register, and if ongoing advice is being paid for, it must always be delivered. 

The Advice Guidance Boundary Review

With regard to this thematic review, the FCA says ‘Taking action to maintain high standards is important as we look to expand the market to new forms of advice and support, as part of the Advice Guidance Boundary Review.’ 

In the Boundary Review call for evidence, the FCA and Treasury suggested that simplified ‘at retirement’ advice might not be workable due to the complexity of considerations and the need to look holistically. Surprisingly, it did suggest targeted support might be able to offer some ‘people like you’ suggestions. 

The thematic review should help the FCA better understand the retirement advice market. I hope this encourages them to continue working with the industry to find solutions for both simplified advice and targeted support ‘at retirement’. This is vitally needed to plug the very real and likely growing ‘at and in retirement’ support gap.

Next steps – reviewing your approach to retirement advice against FCA findings

The FCA requires all firms offering retirement advice to review their retirement advice approaches against the findings, which will be a considerable exercise. They’ll undertake further wider supervisory work and take action if firms don’t address weaknesses.

The new RIAAT (which is similar to that developed previously for advice on defined benefit transfers) may prove helpful here in understanding the approach the FCA takes to assessing suitability. The article on how to improve cashflow modelling may also help – and the FCA suggests referring to its rules on cashflow modelling around defined benefit transfers.

Retirement income advice is a core part of most adviser firms’ businesses, and one which is likely to grow further in importance as the move from defined benefit to defined contribution plays out. So it’s gratifying to see the FCA highlighting many areas of good practice. Your firm may find on review that you’re already meeting FCA standards, or you might identify some areas for improvement. Looking across the industry, the overall outcome will be an advice sector offering a consistently high-quality service to this vital market.    

FCA documents relating to the thematic review on retirement income advice:


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