Earlier this week, the FCA sent advice firms a letter detailing areas it will be focusing on over the next two years. Retirement income advice was one of the priority areas top of the list. This announcement should ensure that firms focus on the retirement income advice review recommendations.
Sharing his reaction to this latest FCA update, Richard Parkin, Head of Retirement at BNY Investment, is keen to remind advisers – many of whom will already be on the case – that retirement income advice – and risk in particular – are right up at the top of the regulator’s priorities as he comments:
“The FCA’s Retirement Income Advice Review was clear that there is work to be done on improving the quality and consistency of advice in this area. However, despite the regulator setting out its expectations in a Dear CEO letter, the relative importance and urgency of this may not have been fully appreciated by all firms. The announcement makes it clear that retirement income advice is at the top of the FCA’s priorities and that firms need to act quickly and substantively to make sure they are meeting regulatory expectations.
“Among the key concerns highlighted in the FCA review was that firms aren’t always assessing risk in retirement adequately and recognising that the nature of risk when decumulating wealth is very different from that for clients who are accumulating it. This change in the nature of risk demands that firms also consider how their investment approach needs to change, and we are seeing increased interest from firms who are grappling with this question.
“Managing risk in retirement involves thinking about risk in terms of the achievability of objectives, especially the ability to deliver a durable and stable real income. The traditional approach to risk management with its focus on volatility is not enough to achieve this. Our retirement investment framework helps advisers look beyond this to understand what really drives retirement risk and how they can address this for their clients.
“It’s interesting to see that the FCA will be providing further commentary in this area early next year. That doesn’t mean that firms can wait though. The review findings and Dear CEO letter provide clear direction for what is expected of firms and so work should already be underway to align advice approaches accordingly.”
