Following the Financial Conduct Authority's thematic review of retirement income advice, firms have been asked to demonstrate that they have considered the regulator's findings and made any changes necessary to address areas falling below its expectations.
While many firms have already reviewed their retirement income advice propositions following the consumer duty, they need to be able demonstrate how they are delivering good outcomes through quality documentation, client files and data.
Clarity and consistency of approach are also key, along with strong governance and oversight, including when using third parties.
The review covered a lot of ground, but to help firms in the right direction, here are 10 priority areas for advice firms to consider when reviewing their centralised retirement propositions (CRPs).
1. Board/senior management ownership
The FCA’s findings were accompanied by a letter addressed to advice firm chief executives, asking them to document the steps taken to address the review's findings.
This places the responsibility squarely on the shoulders of boards and senior managers to evidence the discussions and actions taken.
The FCA signs off by saying it intends to follow up on its findings, including further supervisory work.
It is important to take time to carefully consider the FCA’s findings and ensure any senior level discussions and agreed actions are properly recorded.
Keeping a central record of the areas considered and actions taken against the FCA’s main feedback points, signed off by senior management, will help to demonstrate proper ownership and direction in addressing the FCA’s concerns.
Taking the opportunity to re-evaluate key areas of your retirement income proposition will also help put your firm in a strong position to respond to any further FCA action or information requests.
2. Management and oversight
Responsibility does not stop with the board and the FCA makes it clear that firms should have strong systems and controls to properly manage and oversee retirement income outcomes.
This should come from a combination of:
- clear governance structure, oversight arrangements and reporting lines;
- recruitment procedures and training and development programmes that include specific decumulation material;
- remuneration structures that promote good customer outcomes and help to prevent or manage conflicts of interest;
- risk management processes and compliance procedures;
- management information (MI) systems, for monitoring customer outcomes and responding to FCA information requests; and
- due diligence of third-party tools and services.
The FCA had particular concerns with the quality and completeness of MI that firms are assessing and encouraged all firms to review the survey questions that informed the thematic review to see what improvements can be made to data and MI.
The FCA survey asked for detailed and broad ranging information on all aspects of retirement income advice and this illustrates the approach firms should now expect from the FCA in its ambition to become a data-led regulator.
In particular, the FCA wants to see firms actively engaging with their advice and new business registers not just as a means of tracking business inflows and fees, but to help identify and manage risks such as:
- loss of ceding scheme guarantees or safeguarded benefits;
- undelivered ongoing reviews;
- inadequate file review quality checks; and
- bias or conflicts in recommended solutions.
Check that your firm’s processes capture the data needed to spot potential harms and that they can demonstrate how this data is being reviewed and acted on.
3. Does your retirement income advice model/CRP capture all relevant areas?
The FCA mentioned several high-level areas to consider for retirement income advice models that were omitted or poorly articulated by some firms.
