City watchdog the Financial Conduct Authority has put the financial advice sector on notice, accusing some firms of “not even getting the basics right” when it comes to retirement advice.
The FCA said that while many firms are doing things properly, some are not considering a sustainable level of income to support retirement or not providing the right information to customers.
Sarah Pritchard, Executive Director of Markets and International, at the FCA said:⯠“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.”
The watchdog said certain recommendations it had seen would result in customers losing guarantees, or facing “unnecessary” charges.
It found that some firms were assuming high returns on low-risk assets, “without explanation”, or basing projections “entirely on past performance”.
The body said it had also seen firms fail to challenge customers on figures that didn’t appear to make sense, such as when income and expenditure suggest savings are available, but the client has no savings. In addition, many firms were failing to consider that customers might need a large sum of money available at once for items like replacing a car or home maintenance.
Other failings included only planning for average life expectancy without considering how much money is needed if the customer lives longer, or failing to consider the tax impact of withdrawals.
As a result, the FCA has called on all regulated firms offering financial advice to review their processes when providing retirement income advice.
To help firms obey the rules, the FCA said it had published a new tool for advisers to check if their recommendations are breaking the rules.
Pritchard added: “Financial advisers have a vital role in helping consumers to make the right decisions now to support them long into the future.
“We want to support a sector that can help consumers access pension benefits, invest with confidence and have a sustainable income when they retire.”
