As the Financial Conduct Authority’s (FCA) Consumer Duty comes into effect at the end of July, advisers are assessing the impact it will have on retirement advice.
Research from Aegon highlights the three key areas advisers anticipate change: communication with clients, assessment of advice value, and client base segmentation and service offerings.
According to Steven Cameron, pensions director at Aegon, the Consumer Duty seeks to “put the client first and demands that consumers receive communications they can understand, services that meet their needs and which offer fair value.”
This reflects the three main areas advisers expect to make changes to their retirement advice offering.
When it comes to communication, the research indicates that 93% of advised clients believe it is important to fully understand retirement advice, and 81% say they have at least a general understanding of their financial objectives.
On assessing the value of advice, only 26% of advisers quantify its value to a great extent, while 24% pay little or no attention to it.
Surprisingly, only 33% expect to make changes in this area. The research reveals a difference in how clients and advisers perceive value, with clients focusing on asset performance, while advisers emphasise financial wellbeing, tax savings, portfolio performance, and specific objectives.
As for segmentation, 51% of advisers currently segment their client base, and 9% plan to do so within the next 12 months. Most advisers segment based on complexity of needs (54%), which aligns with the Consumer Duty’s emphasis on prioritising clients’ needs. However, advisers should also consider the appropriateness of their services for their target market and clients’ individual needs.
Cameron said: “The FCA’s Consumer Duty will have a significant impact on the retirement advice market, not necessarily drastically changing the advice itself, but certainly the framework and evidence that surrounds it.
“Advisers should be considering all areas of potential change in their business and services that could help deliver good outcomes for their clients. Where confident they’re already delivering as the FCA would expect, it is good practice to document how they’ve come to that conclusion to avoid being viewed by the FCA as overconfident or complacent.
“The Consumer Duty seeks to put the client first and demands that consumers receive communications they can understand, services that meet their needs and which offer fair value. These considerations are mirrored in the key areas advisers expect to make change in their retirement advice offering.
“Ahead of the end of July deadline, it’s important that advisers examine where changes should be made not only to demonstrate to the regulator that expectations are being met, but to ensure that clients receive retirement advice that best suits them and the complexity of their needs.”
