2020 – Year of the pathway
2020 will see the introduction of investment pathways for drawdown clients, and consultation on their expansion to those in accumulation too.
These first pathways, launching in August, are a product of the FCA’s Retirement Outcomes Review. They’re designed as a remedy for non-advised clients who are defaulting into cash or not thinking about existing investments when going into drawdown. An understandable notion, although there are many issues yet to be resolved in their application, especially in the SIPP world. The expression ‘square peg and round hole’ springs to mind.
What exactly the FCA expects to see from advisers on pathways isn’t particularly clear either. We know that whenever a firm is making a personal recommendation to a client about the investment of funds in drawdown, the suitability assessment should include consideration of pathway investments (COBS 9.3.3A). There is little guidance, though, on what this will look like in practice.
For a client already with a provider that will be offering the pathway, is it enough to consider the pathways of that firm – or should advisers be looking further afield? Does the adviser need to answer the ‘Step 2’ question for the client (i.e. choose which option is most closely aligned to the client’s situation regarding how they are accessing their fund) and then consider just that pathway or must they include other options?
What about those clients who are with smaller providers that meet the exemption (less than 500 non-advised clients entering drawdown a year), and therefore don’t offer pathways? This doesn’t remove the need for the adviser to consider pathways as part of suitability checks.
You may have thought the MAPS drawdown comparator (which exempt providers would have to point any non-advised clients to) would be a good starting point for advisers to see which pathways are available. However, the comparator isn’t primarily intended for this purpose.
Providers are only included on the comparator if they choose to be, with a potential issue caused by the MAPS intention that each provider can only have one product on the tool. So, barring a change of heart from MAPS, for firms that have multiple products – both non-advised and advised – it is most likely that only the non-advised option will be on there.
Given many adviser-only providers will meet the exemption and not be required to offer pathways at all, there may be few – if any – advised products on the drawdown comparator tool.
In some cases, considering the pathways could be little more than a box-ticking exercise, a paragraph or two in a report, similar to the RU64 requirement to consider stakeholder pensions. Advisers will continue to recommend a more tailored investment solution that takes into account personal circumstances and attitude to risk, and so more accurately reflects the plans of the individual, rather than the ‘one-size-fits-all’ approach of the pathways. Quite why the FCA saw the need to add another hurdle to the advice process, and what will be achieved in the context of advised clients, is far from clear.
This article was previously published by Retirement Planner.