Drawdown Advice 2020
I’ve spent the last few weeks travelling the length of the country talking about the Retirement Outcomes Review (ROR) and what it means for advisers and their clients.
The ROR is mainly focused on non-advised customers and the FCA fulfilling its mission to protect them from harm – on this occasion, specifically in relation to retirement benefits in a world of pension freedoms. All well intentioned and honourable enough, but some of the remedies are far from ideal, especially when you realise the extent of the impact on advised SIPP customers and advisers themselves.
Changes to wake-up packs, annuity information, illustrations and charges information may cause a ripple or two in an adviser’s business, with potentially more queries coming your way, but summary documents and clearer charges information for comparison purposes aren’t a bad thing.
However, the seismic impact heading not just for providers, but advisers too, will be felt from the investment pathway rules. Pathways have been dreamt up to stop people sleepwalking into cash and never investing their funds. You can understand that there is an issue that needs to be addressed in the context of non-advised clients disengaged from their workplace pensions who switch to a drawdown product to access their funds without thinking about investments. The question of whether these pathways are necessary for the SIPP market, as by definition even non-advised clients have actively sought out the SIPP and are therefore more engaged with investing, was raised in consultation and many respondents thought the pathways inappropriate. However, the FCA has chosen to plough ahead and impose the requirement for pathways on SIPPs anyway.
The real – and you could argue unwarranted – kick, though, is the impact on the advice process.
Instead of limiting the investment pathways to clients without an adviser, the FCA has put rules in place that state an adviser making a personal recommendation on drawdown funds must consider the investment pathways too. Advised clients weren’t looked at as part of the ROR and they aren’t at the same risk of defaulting into cash. The fact that advisers are then embroiled in the pathways at any level seems totally unnecessary.
To make a recommendation for a drawdown client to invest in anything other than the pathways, advisers will need to consider the pathways first. This means advisers will need to consider whether any of the four investment pathway options available are suitable for their client (two of which both involve emptying the fund within five years, so not much of an investment anyway!). If you’re with a provider that doesn’t offer pathways (firms with less than 500 non-advised drawdown clients a year are exempt), then you will have to consider others in the market.
It’s fair to say I’ve not been the most popular person whilst passing on this information and, judging by some of the responses I received, I was bringing bad news to many advisers who weren’t aware that the pathways were going to have such an impact on the way they write business in the future.