The FCA’s thematic review of advice

This review is a piece of discovery work to explore how financial adviser firms are delivering retirement income advice and assess the quality of outcomes consumers are getting. 

The FCA’s state intention goes beyond understanding how pots are being turned to pensions, it is the first test of how advisers are meeting the challenges of the forthcoming consumer duty and it is also looking at how consumers are being helped to create liquidity from their property through equity release.

“The quality of outcomes” suggests that this work will focus on quantitative as well as qualitative matters. This thematic review replaces an earlier abandoned review assessing the suitability of advice and I’d hope that it will help us better understand what advisers and their clients consider the right trade offs between retaining wealth, drawing income and insuring against the cost of living longer – especially in an inflationary world.

My view is that most advisers do a great job creating cash flow plans for clients that allow them to enjoy later life with confidence. There is a price to pay for this , but judging from client feedback, that price is one many affluent people are prepared to pay – they consider they are getting value for money.

Of course there will be pockets of bad practice and I expect the review will come across some but we have come a long way from the RDR in terms of the quality of advice and the professionalism of advisers. This is not a dysfunctional part of the financial eco-system.

But we have to remember that the needs of the mass affluent cannot be readily translated across to the majority of people leaving the workforce because of age. Most people are mostly dependent for their retirement income not on their savings but on pensions and most pension is paid from the state.

Steve Webb/Phil Boyle – LCP 2021 presentation to PMI

The issues that pre-occupy the affluent are “rich people’s problems”

Steve Webb/Phil Boyle – LCP 2021 presentation to PMI

So we should be careful not to draw conclusions for the mass market based on a thematic review of those paying for advice.

Investment considerations

There was no generally available investment strategy in 2022 that protected people from the rise in the cost of living. Even cash (which was the only safe haven for capital) failed to return more than a third of the increase in cost of living expenses.

But most wealth managers were not invested in cash but in a range of debt and equity instruments that produced negative nominal returns and no inflation protection. Advisers cannot be blamed for this, indeed , their role has been to keep a strong hand at the tiller and to ensure that clients do not panic, liquidating long-term positions that are likely to bring value as markets recover.

However, there are question marks as to the suitability of being directly invested into the market, if the immediate consideration is the provision of income and no doubt the review will look closely at how robust the drawdown strategies have been when tested. The sharp declines in some markets, especially the bond market, in 2022, may have ravaged the capital value of portfolios – as they have done in some institutional pension funds.

The review could and should ask questions about the viability of “individual drawdown” for some advised clients. Would annuities better suit needs? Is there a role to play for a non-guaranteed annuity (akin to CDC?).

These are questions also being asked by the DWP as they struggle to integrate investment pathways , guidance and advice into the workplace pensions they have responsibility for. There is of course cross-over into the non-advised areas of the FCA’s work – areas governed by the IGCs and GAAs and supported by MaPS’ Pension Wise service.

The FCA has its own data on outcomes from non-advised drawdowns from pots, including the purchase of annuities and the slam-dunk of total cash-out.

It will be interesting to compare the outcomes created after taking advice with those from non-advised activity.

My suspicion is that this market is at a formative stage and we will see many changes over the next 25 years. I welcome this thematic review. I particularly welcome this statement!



About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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