Within that framework, firms must allow some flexibility so that the advice can be tailored to the customer’s needs.
The FCA wants to see an approach that delivers consistent consumer outcomes. For example, if the same client approached two different advisers in the same firm, then they would receive the same advice.
Setting this consistent framework is important in several different areas. For example, the FCA references it when discussing what CFM and sustainable income tools the firm should use.
It uses an example of good practice where a firm sets out the main CFM and sustainable income tools to use, along with their key features, and guidance on assumptions to use. The adviser is then free to use the most appropriate of these when giving advice.
It also mentions it in connection with risk profiling and developing a robust governance structure.
Record key evidence
The FCA is firm that good record keeping is crucial throughout the retirement income advice process.
This is an area where the FCA has pulled up adviser firms before, but there is still not enough consistency on this front.
It expects firms’ fact-finding to be complete with no gaps, inconsistencies or missing relevant information.
Firms may well consider or discuss wider aspects with clients – such as a range of annuity solutions – but the regulator is looking for firms to record this sort of detail to back up the advice given.
This goes wider than fact-finds.
The FCA is looking for other key information, for example due diligence of income sustainability tools, what assumptions should be used, and the governance framework surrounding the setting of the advice process.
Decumulation is different to accumulation
One of the FCA’s key points is firms must recognise that decumulation is different to accumulation, and firms must adjust the advice process to mirror that.
Not only should the end solution reflect the customer’s needs, objectives, risk profile, and expenses in decumulation, but the process in getting to that conclusion means taking a different approach.
For example, only 221 firms (out of 977) had a different decumulation process for establishing attitude to risk.
However, the FCA is keen to point out that when moving from accumulation to decumulation it is likely the attitude to risk and capacity for loss for many customers will change.
When it looked at the 24 firms’ advice files in depth it saw for risk profiling there was no clear distinction between accumulation or decumulation.
This worried the FCA as the language and questions were not framed specifically for decumulation, and raised the concern that customers could be inaccurately profiled and take on risk not in line with their circumstances.
