The Financial Conduct Authority (FCA) has written to the CEOs of financial advice firms, requesting that they review their processes when providing retirement income advice.
The letter followed the FCA’s thematic review of retirement income advice, which examined how firms were providing advice.
The review identified examples of good practice in the market, with some firms showing they had considered their customers’ needs and designed their advice model in a way likely to lead to good outcomes.
Some firms had clearly detailed processes, specific training on decumulation and used a range of tools to help illustrate complex information for customers.
However, the regulator also found examples of firms that had not taken account of the needs of their customers.
This included where firms operated in a way unlikely to lead to good customer outcomes by not considering a sustainable level of income to support retirement and some instances of firms not providing the right information to customers.
Most of the advice files the FCA reviewed showed advice provided was suitable.
However, in a small number of instances recommendations resulted in consumers losing guarantees or incurring unnecessary charges.
Sarah Pritchard, executive director of markets and international at the FCA, said: “Financial advisers have a vital role in helping consumers to make the right decisions now to support them long into the future.
“Decisions for consumers approaching retirement are complex, with the potential for risk.
“We want to support a sector that can help consumers access pension benefits, invest with confidence and have a sustainable income when they retire.
“Some firms are getting this right and making a real difference to their customers.
“However, others are not even getting the basics right and putting their customers’ futures at risk.
“We urge all firms to take on board our findings and review their own processes. Where they do not, we will act.”
Rachel Vahey, head of public policy at AJ Bell, said: “The biggest fault the FCA identified is on record keeping.
“It wants a much clearer picture of how customers’ individual needs are considered when reaching decisions on retirement income.
“It’s not so much that wrong decisions are made – just the evidence backing them up is missing in the files.
“This serves as a useful reminder for financial advisers for all areas of advice – it’s all about record keeping.
“And that inadequate records create risks for all aspects of the advice journey and achievement of good customer outcomes.
“The FCA wants to see evidence the right factors are being considered, and that those customers paying ongoing fees are getting a service back in return.”
