The City watchdog has accused retirement advice firms of ‘not even getting the basics right’ in a scathing report that found some put clients’ futures at risk.
The Financial Conduct Authority (FCA) has written to chief executives, asking them to review and improve retirement income advice services.
It said some fail to provide the right information for customers to make informed decisions on their futures, and made errors on basic calculations of future income.
The FCA said some people getting advice wouldn’t be able to take steps to mitigate any losses, by, for example, returning to work to supplement their income.
In extreme cases, poor advice has caused clients to lose valuable guarantees and incur unnecessary charges.
Back to basics: The FCA has written to chief execs, asking them to review and improve retirement income advice services
The regulator said not all firms were effectively considering sustainability of income withdrawal.’
It wants firms to consider their customers’ current and future income needs in retirement and sharpen up their record keeping.
Shoddy risk-profiling was also causing some customers to take on more risk than appropriate and enduring reductions to their income they could not withstand, the FCA said.
The FCA also has concerns about the depth of ‘fact finding’ about clients, which ensures tailored and appropriate retirement advice is provided.
It said: ‘We had particular concerns around the suitability of the advice given in seven files.
‘The issues we identified included loss of guarantees and features, penalties incurred and unnecessary charges or tax. Some customers were also not given information about relevant options.’
In some cases the FCA came across, vulnerable clients were not spotted and an analysis on the individual’s expenditure was ‘not recorded or completed.’
If a clients’ expenditure wasn’t analysed, it meant their minimum income needs or how much discretionary income they had were not clear.
In other cases, the FCA said people’s wider financial circumstances were not taken into account by some firms. It said the impact of the state pension and all pension pots was sometimes missed, as was scrutiny of possible future capital erosion.
Sarah Pritchard, at the FCA, said some firms make a real difference to clients, adding: ‘Others are not even getting the basics right, putting customers’ futures at risk.’
In a letter to bosses, Lucy Castledine, director for consumer investments at the FCA, wrote: ‘Some firms may not be meeting the needs of their customers, potentially leading to poor outcomes.’
A review of responses from 1,000 firms praised some advisers but said others failed to consider a sustainable income for retirement.
Rebecca O’Connor, of pension firm PensionBee, said: ‘If they are not going to help you be better off than you would be otherwise, what are you paying for?
‘One of the moments in people’s lives when an independent adviser should really shine is that point when you’re about to retire.’
