The Financial Conduct Authority has today written to the chief executives of financial advice firms asking them to review their retirement income advice processes. 

The letter follows the FCA’s thematic review which investigated how firms were providing retirement income advice. 

The regulator said the review identified examples of good practice but also some signs firms were not taking account of income sustainability and not providing the right information to clients.

The watchdog said firms providing a good service showed they had considered their customers’ needs and "designed their advice model in a way likely to lead to good outcomes." Some of these firms had clearly detailed processes, specific training on decumulation and used a range of tools to help illustrate complex information for customers.  

Firms falling short were "not taking account" of the needs of their customers and some firms operated in a way "unlikely to lead to good customer outcomes" by not considering a sustainable level of income to support retirement with some instances of firms not providing the right information to customers.

Most of the advice files the regulator reviewed showed advice provided was suitable, however, in a small number of instances recommendations resulted in consumers losing guarantees or incurring unnecessary charges, the FCA said. 

Sarah Pritchard, executive director of markets and international, at the FCA said: “Financial advisers have a vital role in helping consumers to make the right decisions now to support them long into the future. Decisions for consumers approaching retirement are complex, with the potential for risk. We want to support a sector that can help consumers access pension benefits, invest with confidence and have a sustainable income when they retire. 

“Some firms are getting this right and making a real difference to their customers. However, others are not even getting the basics right and putting their customers’ futures at risk. We urge all firms to take on board our findings and review their own processes. Where they do not, we will act.”   

To help firms the FCA has published a Retirement Income Advice Assessment Tool (RIAAT) and accompanying instructions. This tool shows how we assessed advice files and shows how firms can assess if their advice is compliant with our rules, including the Consumer Duty.  

The FCA has also published the Cash Flow Modelling article to help firms when undertaking modelling. 

Relevant links (FCA supplied): 

1. Thematic Review of Retirement Income Advice
2. Dear CEO letter 
3. Retirement Income Advice Assessment Tool (RIAAT) 
4. Cash flow modelling article