Press Release: Evidencing compliance with FCA good practice for retirement advice

Putting the right technology in place is essential to navigating the new rules, because, unfortunately, not all firms are getting it right. In its thematic review of retirement income advice earlier this year, the Financial Conduct Authority (FCA) highlighted several areas for improvement, particularly in producing evidence of processes and practices. From its desk-based review of 100 files from 24 firms, 10 files were missing key documents and 15 had material information gaps meaning they could not be fully assessed.  

The regulator reiterated its expectations around retirement income advice in a Dear CEO letter issued to financial advisers at the start of October. It also stated “We are following up on the findings of the thematic review with firms and carrying out further work to explore the scale of any issues identified and tackle any harms. We intend to publish further commentary on the retirement income advice market in Q1 2025”. 

Clearly, the FCA’s focus on retirement is not going away, so how can firms ensure they are delivering good outcomes for clients in decumulation and meeting the regulator’s requirements? What does good practice look like? 

Alongside the thematic review, the regulator published a letter to CEOs offering some useful guidance for firms and identifying examples of poor practice where firms hadn’t shown they had considered the needs of their customers - ‘shown’ being the operative word. Here we look at the main areas of concern and suggest how firms can better evidence compliance with the requirements. 

Customer information

The regulator highlighted particular issues with information collection. It said firms would be better able to show they’d considered all relevant factors about clients and reduce the risk of giving unsuitable advice if they had collected sufficient information. It reminded firms that without the necessary information, they might not be able to deal with complaints about suitability. 

Among the shortcomings identified were failures to identify or explore potential vulnerabilities; incomplete or missing expenditure analysis; gaps in information on wider financial circumstances; and no exploration or recording of expected future lifestyle changes.

Getting this right requires creating and maintaining a full and accurate picture of how a client’s lifestyle and spending might change during retirement; including all sources of income; and using up-to-date values for investments, among other steps. Cashflow planning software allows firms to record all forms of expenditure, including one-off and ongoing costs, as well as taking tax and different types of income into account to ensure the income picture is complete.

Periodic reviews 

The regulator used the retirement income advice review to remind advisers that it takes a very dim view of clients being charged for services that aren’t delivered. 

Its survey revealed cases of firms indicating that some customers had paid for but not received any annual or ongoing review. A number of firms were unable to provide the necessary data because they hadn’t sufficiently measured or collected ongoing review activity.

Good practice here begins with recording exactly what customers are getting in terms of ongoing advice, including how often they receive it. The FCA found a number of firms hadn’t set out clearly what services were included in ongoing reviews or identified the controls they had in place to ensure ongoing service commitments were met.

This is especially pertinent to decumulation clients, who are more likely to be potentially vulnerable. Those clients are more likely to suffer poor outcomes if their adviser doesn’t capture changes in factors such as income needs, circumstances and risk profile. 

The regulator expects firms to track and monitor when review meetings are due and record when they are missed, CRM systems should be able to help here. Failure to measure or provide this information will make it harder for firms both to meet the FCA’s requirements and deliver good customer outcomes.

Record-Keeping

Accurate and up-to-date records are essential if firms are to effectively assess customer outcomes and track delivery. 

The FCA provided a long list of deficiencies it identified in record collection and keeping, however. It said its ‘observations about firms’ control frameworks and the inaccuracy of advice registers show that record keeping is inadequate for many firms’.

Vulnerability was again an area of particular concern when it came to record keeping. Almost half of firms were unable to show how they would be able to satisfactorily monitor outcomes for vulnerable clients. Even if they had policies in place, they hadn’t collated any data that would allow them to measure or track those outcomes. Using the right technology can support you in recording this information properly and make it easier to check that outcomes are on track for all clients, including vulnerable individuals.

Firms must keep ‘orderly records of their business, including their services and transactions’ in order to show suitability of recommendations, according to the FCA. An added incentive for firms here is the threat of complaints in which firms might not be able to show their advice was suitable, regardless of whether or not it had been.

The FCA has made clear that it will continue to pay close attention to firms’ ability and willingness to evidence compliance with its rules. Achieving this will often come down to how well firms integrate and use the technology that enables them to provide evidence at every step of the client journey. 

1 https://www.fca.org.uk/publication/thematic-reviews/tr24-1.pdf

2 https://www.fca.org.uk/publication/correspondence/portfolio-letter-advisers-intermediaries-2024.pdf