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Key points from the FCA Sector Views 2018 document

24 April 2018

The FCA published its 2018 Sector Views with a clear focus on client value, says ATEB Consulting’s Steve Bailey, who picks out key messages relating to Pensions and Investments.

The FCA’s 2018 Sector Views has a clearly stated intention to focus on charges and client value and this is entirely consistent with what the FCA have been saying ever since November 2016 when the first asset management study was published.

Particularly in the spotlight are poor value products and platform and adviser charges. The products aspect includes mention of inadequate due diligence by firms. It also refers to poor value legacy products, specifically pension products.

Here are the most telling extracts from the paper.

Poor value products
“Poor value retirement income and personal pension products can cause significant harm to consumers. Our analysis shows consumers are unlikely to shop around or switch provider when moving from accumulation to decumulation. This decreases providers’ incentive to compete either on quality or on price. On personal pensions, we looked at concerns that legacy schemes may offer consumers poor value for money relative to more modern provision.”

“Poorly designed or governed lifestyle strategies are also a potential driver of poor value pensions.”

Complex charging structures are also a driver of potential harm in this area. They make it harder for consumers to compare different pension products and advice or guidance services. In addition, in the advice market, commercial incentives often favour the provision of advice that generates a recurring income.”

Business models can favour the provision of ongoing advice services over the lower cost transactional advice that may better meet the demands of some consumers in the pensions mass market.”

Unsuitable products
“We are also concerned about unsuitable purchases and choices in retirement income and personal pensions, where there is significant potential harm associated with some options. Examples of this harm include:

  • consumers who choose to enter drawdown instead of selecting more secure guaranteed income products, without fully appreciating the longer-term risks involved;
  • non-standard investments offered within self-invested personal pensions;
  • legacy products where product designs may no longer match consumers’ long-term need.”

Unsuitable advice
“Following our work into pension transfer advice given by financial advisory firms, we remain concerned about continued unsuitable advice being received by consumers. This is of particular concern where consumers may be giving up valuable guarantees.”

Pension scams
“These remain an inherent harm, particularly for consumers approaching retirement, and can also act as a driver of low consumer confidence.”

Our view
These views impinge on advice relating to Pension Transfers and Pension Switches.

There is continuing focus and likely pressure on adviser fees. We recommend advisory firms review their fee scales to ensure that they are appropriate.



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