Monday, 30 July 2018 08:30

Guest Column: Is it time to consider Centralised Retirement Propositions?

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Lee Halpin, technical director, @sipp Lee Halpin, technical director, @sipp

At first glance, how the Financial Conduct Authority intends to improve retirement outcomes for non-advised consumers may appear of little relevance to advisers. 

And with no short supply of regulatory changes affecting their businesses’, many advisers might have concluded that the time spent reading CP18/17 was more a luxury than a necessity.

But like the idiom, never judge a book by its cover, the content might just offer a glimpse of wider FCA thinking and possible impacts beyond the headline.

Said headline proposal is that providers should offer three ready-made drawdown solutions within a simple choice architecture. The end goal is clear; delivering more non-advised consumers into an investment strategy that is suitable for their needs, including their risk tolerance and what they intend to do with their pension savings in the future.

The FCA goes as far to suggest broad prescribed objectives for non-advised consumers. These are: those who want their money to provide an income in retirement, those who want to take all their money over a short period of time and those who want to keep their money invested for a long period of time and may want to dip into it occasionally.

But it is the thinking behind this move, particularly the other measures they have dismissed, that might be of wider relevance beyond the non-advised market.

Firstly, the FCA has discounted the Work and Pensions Committee’s recommendation that providers are required to offer a single, default investment pathway, citing that this “is unlikely to adequately capture the diverse needs of consumers in drawdown”.


But perhaps more tellingly is the FCA’s statement that they “do not believe that it will be appropriate for the same investment solution to be used for all of the investments pathways”.

So far, so clear. But what does this have to do with advisers?

And in fact, warnings against a ‘one size fits all’ solution does sound familiar. ‘Shoe-horning’ was the phrase used by the then Financial Services Authority back in April 2012 and CIPs were the context.

The FCA then further repeated this caution in February 2016 when it published reference material on assessing suitability on its website – “consider the suitability of advice for clients on an individual basis – don’t ‘shoehorn’ clients into the CIP”.

When you consider decumulation has its own unique set of risks (from longevity to sequence risk), along with more options to consider-courtesy of the Pension Freedoms- is recommending a CIP that works in accumulation to a client in drawdown in fact shoe horning?

Surprisingly, few advisers have a Centralised Retirement Proposition (CRP). A survey in 2016 revealed that 86% of respondents used the same CIP for pre and post retirement.

Advisers will be aware of the wave of at-retirement investment solutions now being promoted by providers. Some will have no doubt labelled these as no more than a fad. But perhaps CP18/17 could be interpreted as a direction of travel?

While the FCA concede that the investment pathways they propose “may not provide optimal outcomes for all consumers”, perhaps they will hold advisers to a higher standard when conducting a suitability assessment. It might just be the time to give CRPs some more consideration.

Lee Halpin is technical director, @sipp


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Read 1638 times Last modified on Wednesday, 01 August 2018 12:14
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