Articles - Inside the head of the FCA

During the time between leaving Royal London and re-invented myself as a Technical Director at Intelligent Pensions, the FCA managed to publish not just one but three documents which promise to outline their thinking for 2017/18 – perhaps it takes that many to explain the mind of a regulator. Much of this is not news, but it does show that the regulator is adapting, if not always decisively, to the fundamental changes affecting our profession.

 By Fiona Tait, Technical Director, Intelligent Pensions

 The 2017/18 Business Plan

 The regulator has a number of “cross-sector” priorities which stem from external factors – prolonged low interest rates, increasing longevity and of course the uncertainty resulting from Brexit.

 Within these parameters the FCA goal is the delivery of good value financial products and services, in particular to the increasing number of older and potentially more vulnerable consumers. The plan recognises that while people are living longer they are not necessarily remaining in good health, and may be at risk if their physical and cognitive abilities decline. For younger consumers the key issue is to create an understanding of the need to save more, and exploring ways in which these savings can be made to work as efficiently as possible.

 The plan also focusses on the development of technology solutions, and highlights the support being given to firms via Project Innovate and the regulatory sandbox. The use of technology is anticipated to reduce the cost of delivering products and advice, and improve speed and efficiency of service. This is expected to improve access for mass market consumers however, it is noted that there is a risk some consumers, especially those who are vulnerable due to age or lack of access to technology, may be even further excluded from receiving advice and guidance.

 As a result the regulator is likely to look favourably on businesses that:

 • Offer services adapted or tailored to older consumers
 • Develop technology solutions to reduce the cost of products and advice

 Sector Views

 Not usually published as a separate document, the Sector Views focusses on specific markets including “pensions and retirement income”, “retail investments” and “investment management”.

 In the latter categories, the focus is heavily on value for money and transparency of charges which is of course fundamental for retirement products as well. Charges should be clear and simple, “all-in fees” are encouraged for investments.

 The regulator also believes that a competitive market is more likely to deliver value to consumers and the Sector Views highlights the dominance of a few providers in each area of retirement planning. According to their figures the top five firms offering personal pensions and stakeholder plans, annuities and drawdown have 67%, 68% and 43% of their respective markets.

 Given the long term nature of pension planning, many consumers hold legacy pension arrangements which do not offer some of the features of newer plans. This taken together with a continued lack of shopping around means that many consumers may not be getting the best deal possible.

 The Sector Views emphasises the difficulty of decision-making when moving into decumulation, which is now less likely to be a one-off event. The shift from defined benefit to defined contribution plans means people are having to make some very key decisions when they want to start taking benefits.

 Consumers, at this point in their lives, are also particularly vulnerable to fraudsters and scams. The FCA believes there will be an increasing need for advice and guidance and that the industry must find new methods of delivering this in ways that are affordable for different groups of consumers.

 Self-directed, or automated advice, is likely to improve access but may not ameliorate the risk of poor decision-making. The announcement of a review into non-advised drawdown is in my view extremely welcome.

 As a result the regulator is likely to look favourably on businesses that:

 • Offer clear and transparent charging structures which consumers can easily understand
 • Offer a range of advice solutions targeted at specific consumer groups

 FAMR update

 The regulator has also published an update on progress under the Financial Advice Market Review (FAMR). It is hard to avoid suspicions of complacency here since 21 of 28 recommendations are happily marked as “completed” or “on track” , and the rest subject to consultation. Some of these, such as the definitions of “advice” and “guidance” may be marked as complete but I suspect there is more to come.

 In summary, the regulator recognises the need for change and is looking at ways to address the demands of older consumers and changing retirement patterns. It would be really helpful if our aspiring new governments recognised the same long term issues in their manifestos.


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