Earlier this month, the FCA released a Portfolio Strategy letter emphasising their continued focus on the suitability of advice for Financial Advisers and Intermediaries.


The latest Portfolio Strategy communication confirmed the FCA’s drive regarding advice to British Steel Pension Scheme members, whilst also confirming a two-year focus on Retirement Income advice.

Pensions in the spotlight

As a higher risk area, it’s no surprise that the FCA are focussing on Retirement Income advice. Consider ten years ago: the majority of clients would have to buy an annuity or take a scheme income from an occupational pension scheme.

However, the changes to the rules – including pension freedoms in 2015 – have led to far more clients choosing drawdown from their retirement income. This has created a significant shift from secured income throughout retirement to income dependent on investment performance.

In addition, the FCA had previously announced their intent to focus on Retirement Income advice in its second Suitability of Advice review, but this was cancelled in the early months of the pandemic. However, the Portfolio Strategy letter confirms that the FCA’s focus hasn’t changed, and they will concentrate on this area of advice over the next two years.

They also confirmed that details of their planned work will be announced in the coming weeks.

Three important areas to review

So, what can your firm do to demonstrate it’s providing suitable advice to clients for Retirement Income?

  • First and foremost, conduct a review of your Retirement Income advice process, including the consideration of any potential conflicts in the process. Where conflicts are identified, processes should be put in place to mitigate or manage that risk.
  • Secondly, it’s time to reflect on whether you’re gathering enough Know Your Customer information. For instance, one area where firms often fall short is collecting sufficient details about a client’s income needs in retirement. Many firms use cash flow modelling, which is a helpful tool that can support the suitability of advice. However, it’s important that appropriate assumptions are made and robust stress testing is undertaken.
  • Crucially, firms should be reviewing a proportionate number of Retirement Income recommendations. This will provide useful MI to demonstrate whether clients are truly receiving good outcomes and should help to identify if and where improvements need to be made. The Portfolio Strategy letter confirms that external file checks can be a useful tool in this area.

The benefits of timely preparation

Reviewing your firm’s Retirement Income advice processes and advice files will help ensure you’re in a good position for the work the FCA will be announcing soon. The results of any process or advice file reviews are useful MI and should reassure your firm’s governing body that clients are receiving good outcomes.

In turn, this MI will also be a helpful point of reference as you get ready to implement the Consumer Duty.

TCC’s regulatory experts are skilled at delivering a personalised service to help firms meet their compliance needs. To learn more about how our specialists can help your firm, get in touch today.