Parmenion’s Patrick Ingram joined the recent eValue webinar to dive into the FCA’s ‘Dear CEO’ letter that followed up on their in depth review of retirement income advice (TR24/1).
Hosted by the langcat’s Tom McPhail, the panel also featured Bruce Moss, founder of eValue, and representatives from Octopus and Scottish Widows.
Here are Pat's three key takeaways:
The 'Dear CEO' letter
The FCA’s fieldwork into retirement income advice is revealing enough weaknesses to warrant a heads up to all adviser CEOs on maintaining high standards. Keep governance tight, follow a disciplined process, and get creative when assessing clients’ risks once they give up work. Viewing these points through a Consumer Duty lens brings a lot of clarity: who are we serving, what do they need, how do we add value, what harms must we avoid, how can we support good outcomes, and how do we maintain control? Answering these essential questions puts an adviser in a stronger position.
Cash flow modelling
The FCA is shining a spotlight on cash flow modelling with their new workflow kit, the Retirement Income Advice Assessment Tool (RIAAT). Advisers should use the RIAAT to assess their fact finding and analysis, before making recommendations. One important point of the RIAAT is to make sure the client is comfortable with the ratio of their guaranteed income - such as State Pension, DB and annuity - to their total spending needs. This makes a lot of sense. The regulator doesn’t think annual reviews are being carried out as they should.
Market outlook
Bruce Moss talked about equity-based drawdown being highly susceptible to market falls, which seems spot on given recent market drops of around 5% - in some cases much more. Whether the market needs more complex, bond-based solutions, as Bruce suggested, is open to debate. Parmenion’s drawdown solutions have always emphasised the value of growth potential in equities to maintain portfolio sustainability. Balanced portfolios seem like a reasonable starting point.
So, what did the adviser audience think?
There was some scepticism from the audience about a panel of providers telling them how to do their job. The regulator seems to see retirement income as a solvable problem with one answer, but advisers know there are several answers and many pitfalls.
I like to distinguish between a wealth management target market and a ‘true drawdown’ target market. In wealth management, flexi-access drawdown plays its part, but a high capacity for loss relegates portfolio sustainability risk to the margins. In ‘true drawdown’, most of the client’s wealth supports regular income, making the sums adding up and the returns that are coming through crucial. The risks are drastically different. Annual reviews for a wealthy family in a wealth management model, especially in strong markets, isn’t going to focus on plodding through the RIAAT.
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