Financial advisers need to take a closer look at the suitability of their investment approach for clients taking an income, according to platform Wealthtime.
The FCA’s update this week on its thematic review of retirement income highlighted that some firms were failing to take account of the different needs of customers in decumulation.
Robert Vaudry, head of commercial at Wealthtime, said the regulators comments should drive advisers to take a closer look at their investment approach.
He said: “The regulator’s comments about the sustainability of income withdrawal are particularly important given that people in retirement have few options to boost their income if they start to run out of money too soon.
“Firms need to consider different investment approaches for clients in decumulation to mitigate some of the specific risks faced, like sequencing and longevity risk and avoid providing unsuitable retirement advice that could result in significant financial harm.
“They also need to ensure their investment approach, whether using a Centralised Retirement Proposition, Centralised Investment Proposition or something else, is suitable for clients who are taking an income.”
He also called on platforms and DFMs to ensure they offer functionality and propositions that support the different needs of those in decumulation, including flexibility and choice of tax wrappers and managing income, as well as innovative investment choices that deliver a sustainable long-term income, perform in different market conditions and continue to meet the client’s objectives and risk profile.
The Financial Conduct Authority this week wrote to the chief executives of financial advice firms asking them to review their retirement income advice processes.
The ‘Dear CEO’ letter follows the FCA’s thematic review which investigated how firms were providing retirement income advice.
The regulator said the review identified examples of good practice but also some signs firms were not taking account of income sustainability and not providing the right information to clients.
The watchdog said firms providing a good service showed they had considered their customers’ needs and “designed their advice model in a way likely to lead to good outcomes.” Some of these firms had clearly detailed processes, specific training on decumulation and used a range of tools to help illustrate complex information for customers.
Firms falling short were “not taking account” of the needs of their customers and some firms operated in a way “unlikely to lead to good customer outcomes” by not considering a sustainable level of income to support retirement with some instances of firms not providing the right information to customers.
