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Dear CEO | Release Date: 20th March 2024

To read a shorter summary of this Dear CEO letter, click here.

To access the original FCA document, click here.

Long Summary

The Financial Conduct Authority (FCA) has recently completed a thematic review of retirement income advice offered by firms. The review’s findings, which were published and shared with industry leaders, show a spectrum of practices ranging from highly effective to those likely causing poor customer outcomes. This variation underscores the need for a consistent approach to meet the standards set forth by the FCA, especially following the 2015 pension reforms which significantly increased the complexity and flexibility of retirement planning.

Key Findings and Areas of Concern

The review identified key areas where firms are either excelling or failing. A number of firms demonstrated good practice by aligning their advice models closely with customer needs, likely leading to favourable outcomes. Conversely, there are firms whose practices do not sufficiently meet customer needs, thereby risking poor outcomes. Specific concerns include:

FCA’s Strategy and Vision

The review is part of the FCA’s broader Consumer Investments Strategy, which aims to maintain high standards in the consumer investments market. This strategy is crucial as the market evolves to include new forms of advice and support. The FCA envisions a market where consumers:

The Consumer Duty

The review also addressed the upcoming Consumer Duty, which was not in force at the time but is expected to influence future compliance. The Duty requires firms to act in good faith, avoid foreseeable harm, and support customers in achieving their financial objectives. Most firms are likely to require changes to their practices to meet the standards of the Consumer Duty.

Actions Requested from Firms

Internal Review and Compliance: Firms are encouraged to assess their own practices against the findings of the review and make necessary adjustments to align with FCA requirements. This includes improving the advice process, enhancing customer outcome monitoring, and ensuring that all practices are up to date with regulatory standards.

Use of Tools and Resources: The FCA has introduced the Retirement Income Advice Assessment Tool (RIAAT) and published an article on Cashflow Modelling (CFM) to help firms improve their advice processes. Firms are urged to use these resources to better understand and implement the recommended practices.

Engagement and Reporting: Firms should engage with the questions provided in the FCA’s data survey to enhance management information systems. They must also report any significant findings or changes to their practices as part of their ongoing regulatory obligations.

Ongoing Supervision and Support

The FCA plans to continue its focus on retirement income advice, with further supervisory activities planned to address and mitigate the issues identified. The authority will also follow up with firms individually to ensure that improvements are implemented and maintained.

Conclusion and Key Takeaways

Firms must take immediate and thoughtful action to align their retirement income advice services with the findings and recommendations of the FCA’s thematic review. Key actions include:

By addressing these areas, firms can significantly enhance their service quality, thereby ensuring better outcomes for their clients and aligning with regulatory expectations.

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