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The long-awaited FCA Thematic Review (TR24/1) on Retirement Income Advice has finally landed (on 20th March), and as expected, the financial press was full of articles on what the results of the review revealed.
As perhaps expected, most articles used provocative headlines and narrative as clickbait to lure advisers into voicing their opinions (anything SJP or heavy fine related usually drives the regular commentators into a frenzy) and there is plenty of commentary on the various forums about the FCA this or that, with cries of indignation that client fees will need to go up, blah, blah, blah, but did TR24/1 reveal that much? Maybe, but perhaps this wasn’t always immediately obvious.

What did we expect?

Well, pretty much what the report said.

We’ve been opining on this matter for some time now, but the findings don’t come as a shock at all. We felt that there may be a little more fire and brimstone and revelations that this sector of the advice market had some lingering issues. There are some of course, and these will cause all sorts of headaches for some firms, but as we’ve said before, there are some good firms out there and they continue to do a good job, but there are a lot that don’t too.

So what did the review reveal?

As is the case with many FCA thematic reviews, the number of files checked was remarkably small, but the regulator nonetheless felt that it was able to reach objective conclusions despite the relatively modest sample. They requested 100 files from 24 firms but were only able to check 67, fundamentally because 33 had key information missing. The good news is that the advice in 45 of these was rated suitable, but a third lacked sufficient detail to enable a check to be performed, this tells us quite a lot, and given the issues identified, file checks weren’t the only area of focus.

In our view, the pensions freedoms as they’re called, caught the FCA a little off guard (they were a surprise to a lot of people, but a big vote winner in a general election) and the resultant flurry of DB pension transfers really focused the regulator’s attention, resulting in significant bolstering of COBS 19 to deal with the issues they’d identified. That ship now appears to have sailed to a degree, fundamentally because most of the money is now in DC and at some point clients will want to access their pension funds to provide for their retirement. Hence the thematic review. Not rocket science this is it?

At 53 pages, TR24/1 is probably shorter than we thought it might be (and it’s dwarfed by the RIAAT guidance at 92 pages – more on RIAAT later), but some aspects are likely to have a big impact.

Rather than just highlight the issues that the TR raised, we thought firms would get more benefit if we looked at what they mean and what they may need to do as a result, so we plan to produce a few articles to cover matters. This is the first of these.

The expected culprits reared their heads of course:

• Advice suitability – a lot of focus on CIPs/CRPs
• Income withdrawal strategy/methodology
• Risk profiling
• Periodic suitability assessments
• Systems and controls
• Cashflow modelling and;
• Firms’ readiness for Consumer Duty - bizarrely, the regulator requested data which related to the period before Consumer Duty went live, so some firms will have some of the bases covered. Others won’t.

Mostly, these areas of concern are exactly what we’ve been seeing year in year out and unless firms do something different, this is probably what we’ll continue to come across in future. The definition of insanity is repeatedly doing the same things and expecting different results, so something has to change in a lot of firms.

What came out of the detail?

Interestingly, and this is perhaps not glaringly obvious from the review, is the FCA’s commentary on control frameworks. They noted the following:

• Some firms found it difficult to provide the requested information for the data survey. This was because data was not centrally recorded or could only be provided through manual extraction from individual files.
  
  
• A number of firms involved in the desk-based review had difficulty providing fully completed advice registers. Inaccurate or inadequate management information was found in 13 of the 24 advice registers submitted. In several instances, the registers were so inaccurate that the advice scenario for files they received did not match what was recorded.
  
  
• 20 of the 24 firms (83%) had a governance structure that had clear reporting lines and designated individuals accountable for key areas of the business, but in four firms their documentation did not clearly explain how oversight worked in practice, with gaps in the documents or no organisational charts to explain this.
  
  
• Firms’ own QA checks frequently failed to identify missing information, or that there were potential issues with the suitability of advice given. The FCA found inaccuracies in two thirds of the files requested for one firm, despite the files having been checked under the firm’s QA process. For example, they received accumulation advice files instead of retirement income files, advice that had not proceeded or had not been presented yet, files that had not been QA checked (but were recorded as having been checked) and files for annuity advice that had been recorded as drawdown (and vice versa).

The conclusion here…

Is that firms need to get their acts together as far as MI is concerned. The FCA can’t perform lots of firm visits right now (they’ll follow in due course when they know which firms they want to speak to up close and personal), but they are requesting LOTS of data. We wrote an article on this last year Consumer Duty – the shape of things to come? – ATEB News (ateb-group.co.uk) and firms that don’t produce MI, analyse it and act upon what it tells them may find evidencing that they’re onside with Consumer Duty a bit challenging.

By Paul Jay, Senior Compliance Consultant

Our View

Meaningful MI is a must for firms. Without it, they have nothing with which to work. How do they know what their target market is, which clients they want to deal with and which they don’t? How can they evidence that the advice they provide is suitable, which after all is the cornerstone of any advice business? What does the data tell them and where do they need to focus some attention?

The regulator is increasingly asking for more and more information about firms and those that can provide the data are far less likely to incur issues than those that can’t. It isn’t as though there haven’t been some pretty hefty hints at this. Anyone who’s attended an FCA Live and Local event will be able to tell you that they keep hammering home the message that firms need meaningful MI and that they need to act upon what this tells them. Far better to get some help in this regard than for the FCA to rock up and tell you.

Much of the rhetoric coming from the regulator is telling firms that they need to be organised, properly resourced and financially sound, which may indeed be the case, but if you don’t have the data available to prove it, then it’s pretty obvious which way things could go when the email hits the CEO’s or SMF16’s inbox.

Action required by you

If you don’t have a suite of MI, analyse it and agree on what action to take based upon what it tells you, then it’s probably time that you did.

Data requests from the FCA are more often than not, unsolicited, and usually require a response within ten working days. Firms that aren’t able to produce the data are far more likely to receive further questions and greater scrutiny, so if that’s not sufficient incentive to do something what is?

If you haven’t got your stuff together yet, contact us to see how we can help. It’s better to find out within an audit than it is to be wise after the event.