Retirement Income Advice Review

Hi, everyone. My name's Craig Muir, and I'm joined by my colleague Justin Corliss, and we're both part of the technical marketing team at Royal London. Thank you very much for allowing us to speak with you. Now, today we're going to delve into the FCA's Retirement Income Advice Thematic Review. That's the TR24/1 if you're interested in looking it up.

And I guess one of the first questions is, you know, why did the FCA carry out this thematic review into retirement income advice? And the FCA said that unsuitable retirement income advice has the potential to result in significant harm. So, for example, it can result in consumers suffering a reduction in their level of income or their funds running out too soon, potentially paying higher charges than necessary, and also investing in complex solutions that they don't understand, or they're not aligned with their risk profile.

And for many of these consumers, they may be unable to take the necessary steps to mitigate any losses, for example, by returning to work to supplement their income. It's therefore crucial adviser firms effectively understand the retirement needs of their clients, including what level of sustainable income may be required, and recommend a suitable solution to meet those needs.

I'm sure this'll come as no surprise to you bearing in mind the FCA's focus on, previous years that they said firms must also ensure that vulnerable customers are treated fairly. Now, although the Financial Conduct Authority found firms have thought about the needs of vulnerable customers, they were not always implementing vulnerable customer processes in an effective or consistent manner which risks poor outcomes for these customers.

Okay, for this to be CPD-able, there needs to be learning objectives. And by the end of the session today you should be able to list the regulator's main concerns with retirement income advice, consider the suitability of your retirement income advice, and then outline best practice for income drawdown reviews.

Now, before we look at the results of the thematic review, I just wanted to show you the research methodology. So, the results, they were drawn from a representative sample of 977 adviser firms who responded to a data survey, and then a desk-based review of the advice models and 100 advice files of non-representative sample of 24 firms. Now remember, this is the first time since pension freedoms were introduced that the FCA have told us what good and bad looks like for retirement income advice.

Yes, we had the retirement outcomes review back in 2018, but that was focused on non-advised at retirement solutions. So, it's important we understand the regulator's areas of concern for the advice market and also look to address any shortcomings we may have.

Okay, so let's move on and look at the main areas of concern. So, the FCA's review of advice models revealed a mixed picture. They said some firms had evolved their approaches and adapted to the post-freedom's landscape. Now, these firms had clearly detailed processes, they had specific training on decumulation, and they used a range of tools to help illustrate complex information for customers.

They also found some examples of good practice where the advice and services delivered were clearly designed to meet the needs of customers in decumulation. However, they also highlighted that not all firms are taking account of the different needs of customers in decumulation as opposed to accumulation.

They saw some examples of poor practice where some firms had not shown they'd considered the needs of the customers or set out their advice model in a way likely to lead to good and consistent outcomes. They also found instances where some firms hadn't provided the right information to support their customers to make informed decisions.

Now, another area they had concerns about was the considerable differences between firms and the advice file record keeping. They noted that 10% of the files being reviewed were missing key documents, so they couldn't be assessed. Now, of the files they were able to review, 45 files, which was 67%, they were found to be suitable.

However, they found seven files, which is 11%, where they had concerns about suitability, and 15 files had material information gaps, or MIGs as they're often known as, so they couldn't be fully assessed. Now, that was 22% of the files. Now, the good news is they provided a copy of the Retirement Income Advice Assessment Tool, it's, sort of, often called the RIAAT.

So why is that good news? Well, that's what they use to review the files, and it lists the information you should be getting from your client before reaching your advice solution for them. So, you know what? There really should be no excuse for any information gaps in the future. Now, we'll refer to this later and we'll explain what the FCA suggested they're expecting from you.

But, you know, back to the main areas of concern. So, the FCA, they highlighted five specific areas, and they were: income withdrawal strategy and methodology, risk profiling, advice suitability, control frameworks, and periodic review of suitability. So, what we're going to do is we're going to look at the main concerns for each. We'll then look at areas for improvement highlighted by the regulator, and then we'll look at solutions for each as well.

So first up is income withdrawal strategy and methodology. Now, firms generally use cash flow modelling or a specific percentage withdrawal guide rate to help show clients the income they might be able to draw sustainably throughout their life. The withdrawal guide rate firms use to help calculate sustainable income varies across the market, and I'll show you the rates in the next slide. However, an area of concern of the regulator is not all firms were effectively considering sustainability of income withdrawals. For example, many firms were not using cash flow modelling, or they weren't using it in a consistent or appropriate manner.

Now this lack of, or inconsistent use of cash flow modelling or a withdrawal guide rate to estimate sustainable levels of income means consumers risk making poor decisions about how and when to withdraw their funds. Now, the FCA expect advisers to consider their clients' current and future income needs.

Now, whether firms choose to use a cash flow modelling tool or a withdrawal guide rate, they should adopt a reasonable approach that's adequately tailored to the client's circumstances and objectives. They expect firms to illustrate the longevity of income and a variety of scenarios as discussed with the customer. So essentially to stress test it. And of course, firms should also be aware of, say, FCA's expectations on the use of cash flow modelling in related areas of retirement advice. For example, DB pension transfers.

Now, not surprisingly, the research showed advisers use a range of different withdrawal guide rates to help calculate sustainable income. Now, while some firms had a standard rate or, in fact, an evolving house view to use as a guide for income withdrawal advice, others didn't, and they used cash flow modelling instead. So just to give you some stats, 276 out of 962 firms, or that's just under 30%, stated they had the standard rate. Of those, you can see on the screen, 45 firms used 3%, 199 used 4%, and 32 firms used 5%.

Now, obviously, if 276 advisers said they used a standard rate, then 686 had no standard rate. Now, the FCA went on to ask advisers about using cash flow modelling tools, and they found 810 firms stated they used some form of cash flow modelling, and 111 stated they didn't use cash flow modelling or have a standard rate.

Now, it's important to recognise that the data didn't say how the standard rates firms had chosen to guide recommendations were determined or how these would be used in practice. For example, whether the rate might be varied according to age, you know, the level of charges or other factors. However, the FCA did say that the use of an appropriate guide rate to support income withdrawal recommendations is likely to be helpful for clients, especially where cash flow modelling tools aren't used.

But you need to have a reasonable basis for choosing the withdrawal guide rate you use for each client. And also, where a standard rate is used, this won't be helpful if it doesn't take into account the client's individual circumstances, because it's unlikely, for example, using the same standard rate for clients with significant age differences would lead to outcomes that meet their needs without at least testing outputs with the aid of cash flow modelling.

Now, moving on to look at cash flow modelling. Now, as you know, cash flow modelling has a significant role to play in helping illustrate how much income could be drawn sustainably for the duration of the client's lifetime, taking into account their circumstances and the size of their pension savings. And it can also be helpful to establish their capacity for loss.

Now, there are two types of cash flow modelling approaches in use. There are deterministic or stochastic. Now, deterministic models, they use assumptions which don't vary, so it's just like a future growth projection. Stochastic models, they allow for variability and they produce a range of possible outcomes based on a statistical model.

Now, whichever type you use to illustrate possible outcomes, you should also set out why the actual outcomes will vary in practice. You also need to ensure that the underlying assumptions or the parameters used in cash flow modelling are reasonable, and they're reviewed regularly to ensure they remain appropriate.

Now, although the FCA stated there are no specific requirements for firms to use cash flow modelling, they previously set out their expectations in their DB pension transfer advice thematic reviews. And, you know, and I thought it might be useful to explain some of the comments made. Now, these include that cash flow model outcomes need to be stress-tested to ensure they demonstrate a range of possible outcomes.

And I think that's likely to be particularly important when using deterministic tools. They also said that the output has to be in real terms, so taking account of inflation, that accurate tax bands are assumed and that tax payable by the client is taken into account. Now, you know what? They were probably a bit more eloquent than that, but those were the main points.

Now moving on to an example of poor practice. When moving from accumulation to decumulation, it's likely that the attitude to risk and the capacity for loss for many clients will change, so this need, these need to be reassessed.

Now, from the centralised proposition reviews, for all 24 firms, the risk profiling approach showed no clear distinction between accumulation or decumulation. And, you know, this meant the language and questions were not specifically aimed for customers in decumulation. But clients are less likely to receive employment income in decumulation, and therefore their capacity for loss will have changed, and their investment portfolio should be altered to reflect this.

Although generally the example questionnaires the FCA saw were clear with unambiguous questions and descriptions, some were written with an accumulation specific focus. Now, this means clients could be inaccurately profiled and take on risk not in line with their circumstances. Now, the FCA did say the findings in this area are concerning.

Now clearly, if there isn't adequate risk profiling, clients may be invested in solutions not aligned to their profile or tolerance level and could, as a result, incur financial loss. Now, we'll talk more about risk profiling later in this session.

Let's move on to consider centralised retirement propositions in a bit more detail. Now, as you know, centralised retirement propositions or a CRP, is a documented approach to help different advisers within a firm give advice to different clients in a consistent way. Now it helps guide you on some of the more complex aspects facing clients in retirement. For example, considering different retirement income solutions, ensuring sustainability of income withdrawals, tax efficiency, and investment strategies.

Now, not all adviser firms in the market have a CRP, and some firms have a centralised investment proposition or a CIP, which focuses primarily on the investment-based solutions and doesn't cover things like annuities. And then some other firms, they don't have either a CRP or a CIP.

Whether you have a CRP, a CIP, or use some other approach, the FCA have said you're more likely to be able to deliver consistent and suitable advice where you've designed your advice model to meet the needs of your customers. But you do need to consider a different investment approach for clients in the accumulation and the decumulation stage.

You know, helping a client to generate regular income from a portfolio of volatile assets over an unknown time period, that represents a very different challenge to supporting them accumulate wealth. To provide good outcomes to retirement income clients, traditional asset allocation often needs to be extended to include a broader range of solutions.

Retirement income advice needs to carefully balance the need to generate a high enough return to enable a client to meet their personalised objectives whilst managing the increased volatility this exposes the client to. And counterintuitively, low risk, low volatility solutions can actually expose a client to greater risk in decumulation by not offering the potential for a high enough return to meet the personalised objectives or, the potential for living longer than anticipated.

Now overlapping the investment approach should be the overarching withdrawal strategy. This could include total returns or cash buffers, bucketing, natural yield, and each approach will have its strengths and weaknesses, and each will need to be considered carefully to determine if it's suitable for meeting clients' personalised needs and objectives. And when giving holistic advice on income withdrawals, uncrystallised funds, pension lump sum, short-term annuity recommendations, the FCA expect you to consider current and future income requirements, all the client's existing pension assets, and the relative importance of the plan given the customer's financial circumstances.

Now to help determine sustainable income withdrawal levels, several factors are important. How short-term income needs are met is also relevant. The timing of encashments can impact sustainability if withdrawals are made when investment fund values have dropped. You know, the sequencing risk, and you may have different approaches for mitigating this. I'm now going to pass you over to Justin who's going to take you through the next section.

[00:15:34] Justin Corliss: Okay, thanks for that, Craig. And hi, everyone. The next area the FCA highlighted in the thematic review is that of risk profiling. Okay. So, one of the of the key points that the FCA make around risk profiling is the difference between attitude to risk and capacity for loss.

They say, and I'm quoting here from it, "Attitude to risk represents an individual's mindset or willingness to accept risk, whereas capacity for loss considers their ability to absorb losses." And that's a really important distinction, particularly in relation to retirement income. You may have a pretty brash risk-taker whose attitude to risk may be completely suitable for income drawdown, but their capacity for loss, how much their fund holding or withdrawal rate could reduce without materially impacting their standard of living, may not support using income drawdown in the same way.

Of course, there's often an information asymmetry at play here too. Many clients, even those with a pretty robust financial knowledge, may not be able to identify how their retirement income needs, which will increase with inflation during retirement, can be sustained over decades. So, I'd argue that capacity for loss is very much an adviser-led analysis. And while both attitude to risk and capacity for loss are important, I think clients are less well-positioned to be able to identify their capacity for loss than they are their attitude to risk.

Now, in the thematic review, the regulator highlights that clients' attitude to risk and capacity for loss is likely to change as they move from accumulation to decumulation. I think Craig's raised that a couple of times. And that due to this, it will need to be reassessed. And we'll look at that in a little bit more detail in just a second. But just before we go onto that, okay, in the thematic review, the FCA say, and I quote again "We have also published final guidance on how to establish the risk a customer is willing and able to take in making a suitable investment selection." And that's the end of that quote.

Now, I think it's fair to say this isn't a new document. Okay. You can see it was produced in 2011 by the then FCA. But do you know what? If you haven't done so recently, I think it'd probably be worth dusting this off and having another read of it. And you can see based on the data survey that was the one with the 977 firms that only around one in five or 1/5 of these firms have a different process to assessing attitude to risk in accumulation as opposed to decumulation.

Now, while this is a little bit higher at approximately 30% when it comes to capacity for loss, that is still pretty low considering the FCA make it clear that people's attitude to risk and capacity for loss can differ significantly when they move from accumulating to decumulating. Now, although I don't actually have it up here, the thematic review also states that for desk-based reviews, that was the 100 files from the 24 firms risk profiling showed no distinction between accumulation and decumulation.

Okay. The next point highlighted in the thematic review was that of advice suitability, and integral to this is information gathering. In fact, within the first paragraph of the advice suitability section of that thematic review, the FCA state, and I quote once again: establishing sufficient information about key areas helps firms show that they have properly considered all relevant factors about the customer, so fact-finding should be complete with no gaps, inconsistencies, or missing relevant information." That's the end of that quote there.

Now, the FCA do highlight areas of concern relating to advice suitability, and I've listed the main ones here. The FCA identified these areas of concern through their use of that Retirement Income Advice Assessment Tool, the RIAAT that Craig mentioned earlier on there.

To me, this just highlights once again how useful it is that advisers have access to this tool so they can test the suitability of their advice. Now, I'd always suggest that if you do use this tool to check in-house files, assume that if the information isn't clear on the file, the regulator's going to assume that it isn't held.

And if that piece of information is integral to the path leading to why a particular recommendation is suitable for a client, then it's unlikely to be rated as suitable. So, let's have a look at these points in a little bit more detail. I'll not cover the investment risk point again, as I think we've just spent some time looking at, and there are a few other things that I think it's important that we cover as well.

Okay. So first of all, if we consider the advice suitability findings from the desk-based review, that was the smaller one that looked at the actual files rather than just the survey response. Now, as you can see, of the 67 files assessed using the RIAAT, as we'll call it 2/3 were rated as suitable, and the other 1/3 had material information gaps or there were concerns with the suitability.

Okay. Now, still focusing on the desk-based review and looking at unnecessary or excessive charging. Do you know what? It's actually pretty good news. For most of the firms in the desk-based review, 21 of the 24, the FCA said that they had set out their charging structures transparently and in a way that customers could understand. It was generally clear how charges varied for initial versus ongoing advice different fund values and the different types of services provided.

Several firms had considered circumstances where charges might not represent fair value for customers and would either apply a cap or consider a reduction. Didn't go into huge amount of detail on what that was. And with these firms the FCA found that the level of charges recorded in their advice models broadly aligned with the work involved in delivering those different levels of service. Now, it's not surprising that the FCA gave so many firms a positive review here because the points the thematic review highlights show that these firms were following the essence of the consumer duty.

In fact, the FCA didn't make too much noise about this, in this thematic review about costs and charges and whether the product or service met the customer's needs and objectives at the most competitive price. But perhaps that's because price and value is one of the four outcomes in the consumer duty, which of course is the overriding regulation in financial services.

Right. Another area of concern highlighted in the desk-based reviews was that of the recommended product not meeting the client's objectives, and there were a few sort of key points made here. The first I want to touch on is that of maintaining independence to ensure advisers are exploring sufficient options to meet the client's needs and objectives.

Now I've drawn out a few quotes from the thematic review around diversity of retirement income products used where pension money remains invested. So, they're excluding annuities and later life lending here. But if we look at the comments, I think the regulator's position is pretty clear.

To be independent, advisers need to show they have a diverse range of funds to meet the customer's needs. Fair enough. The long-term nature and complexity of retirement income products makes fair charges and continued value over the life of the product important factors. And the last point is highlighting that if, you know, an advice firm's only using one platform, then it might be difficult to show that you have a sufficiently diverse range of products and providers.

I think this ties in with the concept of target market groups that we're, you know, so familiar with from consumer duty and even probably before that, of course. There is an expectation that firms will segment their client banks into target market groups and then create solutions that match the common needs and characteristics of that group.

Now, while it's not impossible, it would seem less likely that one single platform has the features to satisfy the needs and objectives of all your target market groups or even that all these groups need a platform solution and that some of them would not be more suited to a lower cost solution, perhaps with a range of investment solutions suitable for drawdown, and those already mapped to target markets.

Now, another point raised in the thematic review was that frequency of using the same product for accumulation and decumulation. Now, once again, while it may be suitable in some instances, the FCA make it clear that they expect clients' needs to change from accumulation to decumulation, and that would often lead to the need for different solutions in each phase.

Right. What I'm going to do is I'm going to stop there, and I will pass you back over to Craig to take you through the next section.

[00:25:13] Craig Muir: Thanks, Justin. Okay so, if we now move on to look at some of the key issues identified in the survey of 977 firms and the first one, it'll be no surprise in a consumer duty world.

Potential vulnerability is not identified, recorded or explored despite there being evidence on the file to suggest vulnerabilities may be present. Now, you know what? Client vulnerability is a session in itself. But in decumulation, where presumably most people's capacity to earn further income is reduced, and they're faced with this new concept of income sustainability, it's pretty easy to see why vulnerability could lead to greater detriment than it would be in accumulation.

Next one was knowledge and experience of investing and understanding of risk was either given insufficient attention or not documented on the file, and then expenditure analysis was not recorded or completed. So, it wasn't clear what income was needed and what proportion of this was non-discretionary.

Now anyone familiar with the DBAAT, that was the defined benefit advice assessment tool which relates to pension transfers, will know all about the split between discretionary and non-discretionary income.

Now the concept aligns with the idea that capacity for loss is not only breached when the client can no longer cover the essentials of, you know, heat, eating, shelter and clothing, but rather when they can no longer afford those things that aren't, they're not essential, but they make life worth living.

In other words, when they experience a significant drop in their standard of living. Now, this image that you're seeing on the screen is part of that RIAAT, the Retirement Income Advice Assessment Tool. The template used by the FCA for assessing the suitability of retirement income files. Now, at very least, your file needs to contain this information, but in addition, a robust methodology for how you arrived at these figures. You know, evidence to support them, and to be able to demonstrate suitable stress testing of retirement income expenditure.

Okay, although I don't think you can solely rely on the RIAAT as, you know, because your file really needs to have a lot more information than is required just to populate the RIAAT.

It can be quite a useful checklist though with regard to information gathering. Now, some questions are more useful than others, but when we look at the top bullet point here about wider financial circumstances and things like State Pension forecast missing, the RIAAT can be very helpful to highlight the main areas the FCA expect to be covered.

And if your files aren't capturing some of this information, then it's likely that it'll be deemed there's material information gaps, as the FCA call them. And the FCA deem that if you're not in possession of all the material information, then you're unlikely to be able to arrive at the most suitable recommendation for the client.

And judging by the tone of this thematic review and, the focus there's been on material information gaps since some of the DB thematic reviews, it feels like these MIGs, material information gaps, are an area that the FCA is looking to tighten up on. And I guess the best premise to work from is if the evidence isn't on the file, then the FCA will assume you don't have it.

Looking quickly at these next two then the review found issues with needs for income or lump sums not being quantified or time frames for which income was needed or not stated. Now, if it's not clear why income or lump sums are needed, then it's hard to evidence whether another option would have better suited the client or indeed why the client needed to do anything at all. If the timeframe for which income is needed isn't clear, then, how are you able to assess sustainability of that income?

And then the bottom point there, future lifestyle changes not explored or recorded. You know, without accurate information on this, income sustainability is virtually impossible to assess.

And the final point raised in the thematic review with regard to advice suitability was this. It was unclear whether information relating to the risk of capital erosion, the potential for annuity rates to be worse in future, or that income levels might not be sustainable had been disclosed. Now, you'll probably have noticed I've put this comment on its very own slide, and you might be thinking that's because I couldn't fit it on the previous slide.

And that's correct. But it's also that I want to point out that these are the same risk warnings that the regulator, I think it was the Personal Investment Authority, the PIA, that they insisted income drawdown clients be given since income drawdown was introduced back in 1995. Now, it might be that these warnings seem so basic and so inherent within drawdown that they're barely worth highlighting. But tell you what, the thematic review was confirmation that the FCA absolutely do expect these risk warnings to be explicitly given to prospective clients.

Looking now at the control framework. The FCA stated advisers must take reasonable care to establish and maintain appropriate systems and controls over their business and this should include providing their management with information to identify, measure, manage, and control risks relating to regulatory concerns.

For example, the fair treatment of customers. Of course, that was a message that was hammered home with consumer duty, but the thematic review highlighted that a number of firms had difficulty providing fully completed advice registers, which meant that the FCA didn't receive a full record of advice transactions from which to select advice files for review.

From the files they did review, they identified inaccurate or inadequate management information for over half of the firms, and in several instances, they found advice registers were so inaccurate that the advice scenario didn't actually match what was recorded.

Now, the main areas of concern for the control framework were the recommended solutions were not recorded, which made it difficult to identify transactions that might pose higher risk of customer detriment.

And then when it came to the ceding scheme details, there were a number of issues. The ceding scheme arrangements were not shown the arrangements the customers held before the retirement income advice was given was unknown. The ceding scheme provider names were missing, so it was impossible to identify plans that might have held things like underlying guarantees or maybe safeguarded benefits. And also, where ceding scheme provider names were recorded, any ceding scheme plan features such as underlying guarantees or safeguarded benefits weren't always noted.

Now, when it came to the advice, whether it was just initial or ongoing, wasn't recorded in some instances, and likewise, the level of initial or ongoing advice fees weren't always shown. And then finally, it was unclear whether files had been quality assurance checked.

Fortunately, RIAAT back to the rescue here because once again, it can help with this because it highlights the details the FCA expect you to gather. Firstly, in part seven about the ceding scheme where you can see the pertinent information which they said should be gathered but wasn't, and then secondly, in part eight of the RIAAT, the tool highlights what information should be gathered for the proposed new scheme and makes clear that if you're using multiple propositions for the client, the details will need to be included for each one of the propositions.

Now, one area which may need extra thought is whether the client has or is eligible for State Pension benefits. As for many people, State Pension will be a key part of their future retirement plans and also, it provides a guaranteed level of income to cover essential expenditure. However based on DW figures of as of May 2023, they said that only 52% of people aged between 65 to 69 were actually entitled to the full new State Pension.

This may therefore mean that individual clients have a shortfall, and great care should be made with any assumptions for those who are maybe likely to have been residing abroad, or they'd had maybe long periods of economic inactivity without claiming benefits or, they've had long periods of low-paid employment.

And also, of course, for those who retire early. Because all of these clients may not receive the full new State Pension. Of course, you can get the client to do a State Pension forecast on the government's website to provide how much State Pension they will be entitled to. I'm now going to pass you back over to Justin, who's going to take you through the remainder of this session. So over to you, Justin.

[00:34:08] Justin Corliss: Thanks, Craig. Now to, to some extent, the points the FCA raised with regard to the periodic review of suitability also relate to that last section that Craig just looked at, the control framework. But at a high level the points the FCA made here concern clients paying for an ongoing review service but not receiving it. Now, clearly that's not acceptable.

Now the FCA, consider the ongoing review of suitability to be of paramount importance for decumulation clients, and my top two points here highlight the main reasons why. Not only does the regulator state there's a higher likelihood of decumulation customers displaying traits of vulnerability, but that failure to review factors such as income needs and changes in circumstances and objectives and risk profile and health conditions, and to put in place appropriate systems and controls to support those customers who are vulnerable risks such customers not being treated fairly.

Now, they provide a reminder that cross-subsidy is not acceptable. So, the ongoing adviser charge in respect of a pension plan must be for the provision of personal recommendation or related services for that plan Okay. It would seem that the purpose of reiterating that is to make it clear that if an ongoing adviser charge is being taken, then the review needs, or the reviews need to take place.

The ongoing charge for this can't be used to fund a different service. Now, while overall I thought the FCA were reasonably positive on the subject of ongoing reviews, they did highlight some instances of reviews being paid for but not actually being delivered. By a long way, the main reason for this was clients declining or not responding to the invitation.

But if you're being paid for a service, it's no real surprise that the FCA would like to see a significant action by firms to rearrange these reviews. And if the client continually declines or declines to respond, and if this pattern's, repeated, then to take steps to ascertain if paying for ongoing reviews is in this client's best interest if they're not actually taking them.

Now, a couple of points in this where the regulator wasn't perhaps so positive include disclosure to the client of what is involved in the ongoing review service. Of the 24 firms involved in the desk-based review, the FCA found that four of these firms did not set out clearly what services were included in an ongoing review. And their concern here, of course, is that customers may not be receiving the expected levels of service on a consistent basis.

Now, in addition to this, the regulator has concerns around the monitoring of reviews. They expect firms to track and monitor when review meetings are due and identify whether any are missed. Where firms don't measure key information or aren't able to access that easily they may find it more difficult to demonstrate the delivery of good customer outcomes.

Now, many of you will have seen or read the FCA's consultation paper, you know, simplifying the pension and investment advice rules. That's consultation paper or CP 2016, okay, which I'm sure you'll all rush out and have a look at now. Or at least seen the articles around it in the financial press about how the FCA consulting on whether annual reviews should continue for clients or a requirement for it to be an annual review.

I need to point out that they were only referring to those clients with simpler low-risk investments or younger consumers in the accumulation phase of investing, and they suggest less frequent reviews might better fit those people's needs. I think we'll agree it doesn't necessarily apply that well to drawdown clients who absolutely need ongoing reviews, sometimes, you know, more frequently than annually. Okay, before we look at some of the best practice around ongoing reviews, let's revisit what COBS says.

Okay, now COBS 9.3.3, always been Craig's favourite COBS. That states when a company provides a personal recommendation to a retail client regarding income withdrawals, it must take into account all pertinent factors, including the client's investment objectives, need for tax-free cash and state of health the current and future income requirements, existing pension assets and the relative importance of the plan, given the client's financial circumstances, and the client's attitude to risk, ensuring that any discrepancy is clearly explained between that person's attitude to an income withdrawal, uncrystallised funds pension lump sum or purchase of a short-term annuity against other types of investments. And of course, these things, they're going to change over time as well, aren't they?

So, our starting point could be to reconfirm how the current plan meets the needs and objectives. You'd expect the client to know this, okay? But it might just help to revisit why you and the client arrived at the decisions you did last time you met. Just remember, many people take PCLS first and then income perhaps much later, and therefore they might not be giving a huge amount of thought to the functionality that the plan needs from an income producing perspective when they're just taking that PCLS. So, they're not thinking about what the plan needs to do when they do start drawing income from it.

There's the nuts-and-bolts aspect, updating the factual information, assets and liabilities, income and expenditure, who's reliant on the plan. You know, perhaps you may want to send out the fact find in advance of the meeting so that you can focus on aspects that have changed. Kind of like a refact find, if you like.

We need to identify changes to the client's personal circumstances and whether these require action. This requires obviously a lot of open questions to draw out softer facts. You know, do changes to the client's attitude to risk or capacity for loss or interest rates or other circumstances mean that annuitising needs to be reconsidered?

You know, regardless of whether you decide that an annuity is the right answer, it might be worthwhile producing an annuity quote and keeping it in the client file with perhaps an explanation of why that's still not best suited to their needs and objectives. You know, do the beneficiaries need updated? Perhaps grandchildren noted so that the scheme administrators have the option of giving those people income rather than just a lump sum. Really important point. You know, how's the client's health, their spouses if they have one? And any dependents.

Will any changes mean that there will need to be a change in the client's circumstances? Have the client's cognitive abilities deteriorated? Do they have a power of attorney in place? Do they need to review the expression of wishes form? Does the level of regular income need to increase or decrease?

You know, have new sources of income kicked in from, I don't know a defined benefit plan or a State Pension or inheritances, meaning that withdrawals from this plan can reduce? Or conversely, have other sources of income now been exhausted, meaning that withdrawals from this plan need to increase?

Of course, the investment performance needs reviewed. That's probably a session in itself. I'm not going to try and do it justice in 50 words or less just here. But best practice generally suggests income sustainability should be reviewed at least on an annual basis, perhaps more frequently.

Just to bring this to life a little bit I do know of one adviser using the Royal London drawdown governance service. He got a bit of a shock one quarter when he discovered that one of his clients' income sustainability ratings had changed from green, which is, means on track, to red, which won't surprise you to hear means danger when they checked the quarterly update. Now, as it turns out, the client had taken a further £20,000 out of the plan without consulting the adviser. The client thought that they were doing the right thing as they'd withdrawn that money to put it into their ISA. But it had made the withdrawal strategy look unsustainable.

Now, the point that I'm driving at here is that these regular reviews stop issues like that getting out of hand. Doesn't stop it happening, but it means that you identify it and know about it earlier, and it stops it getting out of hand.

If you want further information on our drawdown governance service, which does act as a bit of an early warning system of trouble brewing, get in touch with your usual Royal London contact. They'll be able to tell you a lot more about that.

But also, how are changes to investment strategy and investment portfolios identified and actioned? The FCA clearly differentiate between accumulation and decumulation. So, from a product governance oversight perspective, PROD, okay, distributors and financial advisers are distributors must identify a target market and have a distribution strategy for each of those target markets. And they state in there, and I'm quoting once again, "The target market identified by distributors for each financial instrument should be identified at a sufficiently granular level."

So, for example, segment your client bank maybe by life stages and have specific strategies for each segment. And what we're highlighting here is advisers who currently use centralised investment propositions, CIPs, for drawdown might want to consider a centralised retirement proposition, a CRP, instead. It's less likely the same investment strategies will be suitable for both accumulation and decumulation.

Moving on down the list there, charges obviously need to be considered as they have a major impact on fund values, and we need to monitor charges– things like changes in the client's attitude to risk and capacity for loss as well.

Now, all of that's going to help identify if the client would benefit from a move to a different proposition. Are any legislation changes likely to impact the suitability of the current advice? You know, perhaps your adoption of a prod or a CRP process means that the recommendation that you gave the client today looks quite different to the plan that they're in.

Maybe income tax changes, maybe benefit level changes, inheritance tax changes. Pretty pertinent one at the moment, isn't it? Or even the abolition of the lifetime allowance, which wasn't all that long ago mean the client needs alterations to their plan.

Now, if any circumstances are identified that require changes, then those need to be agreed and of course implemented as well. Now crucial within this is to clearly outline the roles and expectations for both the firm and the client so that there's no confusion over who needs to do what and by when. It's probably a great time to manage expectations as well, particularly if a switch of provider is being considered because, you know, that could impact short-term the flow of income.

Of course, the review meeting needs to be documented so that we have a lasting record on the file. Now just on that point, if you would identify when establishing the drawdown plan that the client would benefit from reviews, okay, but they decline that service, might be just worth considering having the client sign a document that outlines the importance of ongoing reviews, that they have been offered by your firm, and that the client has chosen not to take up that offer.

Finally, you may want to discuss if the frequency of the meetings needs to be altered. Schedule the next meeting, of course. And if the client is approaching age 75, schedule a full review meeting well in advance of that client's 75th birthday. Although that's no longer a benefit crystallisation event point, okay, since the abolition of the lifetime allowance, it's still important to explain to clients that any remaining PCLS that they might have had post age 75, they can still take PCLS post 75 while they're alive.

However, any available PCLS, if they're post 75 and they were to pass away, loses its tax-free status and the beneficiaries will be taxed at their marginal rate instead.

Okay, I do hope you found this this webinar beneficial, and you managed to get a few points out of it. I'll let you have another look at the learning outcomes. Hopefully you feel that we've met these. If you do have any questions about this presentation or you'd like to know more about Royal London or how our proposition can help in the market, then please speak to your usual Royal London business development manager or account manager. And if you're unsure who any of those are then please just contact us via the standard contact number and we will look into that for you as well.

Okay, that's the end of our webinar for today. Thank you very much and take care. Goodbye.