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Need to demonstrate investment pathways for pension drawdown in suitability reports

10 February 2019

Thesis Asset Management has flagged the FCA’s focus on pension drawdown investment pathways and warned that too many investment solutions used in accumulation are routinely being used in the decumulation phase. 

Following the FCA’s recently published CP19/5 Consultation Paper on Retirement Outcomes Review, Thesis Asset Management has welcomed the idea of ‘investment pathways’ as provider-led investment solutions designed to meet broad client needs.

Lawrence Cook, director at Thesis Asset Management, said the regulator had outlined that advisers should consider these pathway solutions alongside other options available when providing recommendations but some advisers may think the latest consultation paper does not affect them directly.

He explained: “Advisers might be thinking that this doesn’t impact me as CP19/5 is all about non-advised consumers. The FCA is quite explicit that for advisers they must demonstrate that investment pathways have been considered in pension drawdown suitability reports. This also applies every time a client decides to make a new decision to take a fresh chunk from their pension drawdown pot. As such, we now know that the advice market will need to respond to CP19/5.”

Cook said that while there has been a lot of discussion around decumulation and a little innovation in asset management strategies, it is “not nearly enough.” Cook expressed concern that the risks around decumulation are not yet widely understood and until advisers demand new solutions, innovation will be slow.

“That’s why as an industry we must not wait, and instead innovate to support what clients need now,” he added.

Cook also welcomed the FCA’s proposed ‘wake-up packs’, noting that any action to prompt consumers to make more informed decisions will likely heighten consumer appetite for advice.

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