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Chris Woolard interview: FCA strategy chief on drawdown charges, safe harbours and advice costs

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The FCA has set its sights firmly on the drawdown market in the wake of the pension freedoms and warns it expects prices to drop as the product becomes mass market.

The introduction of the freedoms in April has resulted in billions of pounds of pension money flooding into providers’ drawdown offerings. Most providers have launched non-advised propositions to cater for the increased demand.

Speaking to Money Marketing, FCA director of strategy and competition Chris Woolard says he expects drawdown charges to fall as a result of the reforms.

He says: “Traditionally this has been seen as a high-end, complex, quite expensive product, but the effect of the reforms is to make it mass market.

“Around 20 per cent of firms say they are coming forward with new products, and one of the interests for us will be what are the charges associated with those products and do they reflect the relative simplicity of the transactions required?

“What we would expect to see is a market develop that can meet the needs of different consumers at different levels of complexity.”

Asked if this meant the regulator expects prices to fall, Woolard replied: “Yes.”

While Woolard argues the freedoms are “broadly working well” for consumers, concerns remain that too few savers are shopping around the retirement income market.

Woolard says the regulator will unveil a new set of rules next year to radically simplify wake-up packs in a bid to boost switching rates.

He says: “The retirement income market study looked particularly at the question of shopping around. In that we suggested a number of things that could make a difference, including giving people much better information in their wake-up packs. Not loads of information but more targeted information.

“In particular, a really simple illustration of what you can get with your existing provider versus what you can get if you shop around. We have been testing a number of options for doing that with real firms and real customers.

“We would expect to begin to roll those rules out during the course of 2016 and we think that will make quite a difference.”

Woolard also goes out of his way to praise the pensions industry for the way it has responded to the freedoms, in stark contrast to pensions minister Ros Altmann’s recent attacks on providers.

He says: “We said to the Treasury that [the freedoms] are doable but it is going to be quite tight, and that proved to be the case.

“You don’t often hear the regulator say the industry deserves some credit, but I actually think the industry does deserve some credit. With a series of quite difficult challenges from an operational perspective – in terms of getting systems ready and people trained – it got itself in a position where it could function on day one of the reforms.”

Elsewhere, pressure is building on the FCA to ease the regulatory burden on advisers through the Financial Advice Market Review.

However, Woolard rules out the possibility of a “safe harbour” being created as a result of the FAMR.

He says: “There have been calls within the FAMR process to say ‘if I advise you to buy something, you should somehow disapply the standard to me in certain cases’.

“We would still want to see people take responsibility for the advice they offer. The question for us is ‘are there ways the existing system can be made to work properly, and also do our rules need to be modified in some way to give people greater certainty about using automated models.

“If by safe harbour we mean an adviser can tell someone what they should be buying and walk away from any responsibility, then I don’t think that can work.”

And Woolard rejects claims the rising cost of regulation is preventing firms from innovating.

He says: “I’m not sure I agree with the idea that the cost of regulation has become the main blocker [to innovation].

“We are always conscious of costs and the overall regulatory burden but we also have to remember that, particularly in the market for financial advice, the existence of a regulator creates that market in the first place.”

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Comments

There are 14 comments at the moment, we would love to hear your opinion too.

  1. A true “stick of rock” with the word bureaucrat blazoned in bright colors, right the way through the sugary centre.

    I’m sure at the delight of sweet toothed, counterparts, and blind MP’s !

    Why is it that these people want every-one to work for nothing, whilst tripling the work load, in the name of “the people” then seek to cost them (dearly) indirectly for there own inadequacies & incompetence, and in the same breath…….. well, just read the last paragraph

    “We are always conscious of costs and the overall regulatory burden but we also have to remember that, particularly in the market for financial advice, the existence of a regulator creates that market in the first place.”

    FCA, dogma 12.2015 !!!

    I fear any-one feasting on this mans words will end up some overweight, snaggle toothed, leach pumped with their own self importance !

  2. DH – Where is he asking anyone to ‘work for nothing’?

    • Hi Matt

      Speaking to Money Marketing, FCA director of strategy and competition Chris Woolard says he expects drawdown charges to fall as a result of the reforms.

      Asked if this meant the regulator expects prices to fall, Woolard replied: “Yes.”

  3. He obviously has no idea of what is involved and therefore is perfectly qualified for his role of lap dog to the government.

  4. “We would still want to see people take responsibility for the advice they offer. ”

    Quite right too. The trouble is if I read a recent case correctly, we are likely to be asked to take responsibility for advice that we certainly haven’t given (property purchase in Bulgaria).
    Does Mr Woolard have a view on that?

  5. The cost of ‘drawdown’ is, all but for the odd ‘admin fee’ is broadly the same as ‘pre-retirement’ funding – therefore why will charges fall (unless by implication all pension plan charges fall).

    With regard to complexity – a drawdown contract will always be more complex than, say, an annuity or a bank account but is no more complex than a pre-retirement pension. Complexity is relative and depends on the experience of those involved!

    What does add to the complexity is ever changing regulation and tax rules – and with complexity comes time, and with time comes a client cost. Add to that the mire of unregulated stuff that’s still going on and I’d say that the majority of issues that exist for clients (and are being paid for through costs) are not the making of regulated IFAs.

  6. ” We have been testing a number of options for doing that In particular, a really simple illustration of what you can get with your existing provider versus what you can get if you shop around. We have been testing a number of options for doing that with real firms and real customers.”
    When I buy a house in London I do not get a leaflet advising me that I should look at buying a house in Leeds because it is better value or buying a Volkswagon I should look at a Skoda. Why then do we have to treat people who invest like idiots who need to be told to do research and compare LV with Prudential?
    Of course now it has come to me it is to keep these numpties( who run the Nanny state) in a job!!

  7. So ‘draw down’ is now a ‘simple’ product with no referral to FOS presumably if the ‘simple’ product with ‘no’ or ‘simple’ advice does not end up suiting the members’ needs because the ‘simple’ advice was not an ‘expensive’ and comprehensive Client Advice Report.

  8. “Woolard says the regulator will unveil a new set of rules next year to radically simplify wake-up packs in a bid to boost switching rates.” Switching rates to what? Another provider’s annuity? What type of annuity? An annuity with a widow’s pension (all too commonly overlooked)? An annuity with a guaranteed minimum payment period (anything up to 30 years) or no guarantee? A capital protected annuity or no capital protection? An investment linked annuity or just a plain vanilla annuity? And that’s before even considering Income DrawDown (of which there are now many variants) as a possible alternative to an annuity. Perhaps a mix of an annuity and Income DrawDown?

    Why, just for once, can the FCA not simply cut through all the crap and mandate OM as the default option? Perhaps it’s constitutionally incapable of so doing.

  9. Not sure what this illustration will provide.

    What we can provide versus…

    Does the provider now have to put their customer through moneysupermarket as well.

    Presumably they are responsible for the outcome as well.

    Fail to see how costs will fall.

  10. Why are we always so negative. He clearly says the product charges need to come down as they were niche products and are now mass market- what is wrong with that. He clearly says there will be no safe-harbour- ie an advisor can’t say what he wants and be exempt from prosecution- thank god for that -it is bad enough when we do think we are on the hook. He clearly says they are looking at ways to simplify the compliance where it is feasible and make it easier for customers to understand options- sound sensible to me. Our inability to give advice on customer pension freedom needs is caused by us – if we meet customer needs, look out for their interests, have decent controls, record conversations and deal
    Openly and fairly- what is the actual problem?

  11. Jane Hodges ~ Just because a product becomes more popular and more widely used doesn’t make it any simpler or less expensive to operate. After all, neither the legislation or compliance requirements have changed, have they? Maybe they have but I missed it. And Woolard says there’ll be no safe harbour, so cut corners at your peril.

    And I regard with considerable scepticism his claim that “they” are looking at ways to simplify the compliance where it is feasible. “They” are being forced to do so by the Treasury, so we can skip the hogwash about what a great bunch of guys “they” at the FCA all are and how keen “they” are to make life easier for us all.

    And the “actual problem”, Jane, with meeting customer needs, looking out for their interests, having decent controls, recording conversations, dealing openly and fairly, writing it all up in a monster suitability report with a ton of appendices, illustrations, KFD’s and all the rest of it is that five or ten years down the line the customer will decide that, because things haven’t worked out quite the way he’d persuaded himself they would, he’ll raise a complaint, not like the response, refer it to the FOS and just what the FOS verdict will be is anybody’s guess because no two adjudicators reach the same conclusions on two virtually identical cases. But hey ~ like you say, what’s the actual problem? It’s all just in our imaginations (not).

  12. Love the bit of denial & grandeur at the end by the article by our strategic chief.

    We’re all doomed if they continue his strategy based on his comments that regulatory costs do not stop innovation and that we would all be out of work as we wouldn’t have clients if it weren’t for them creating the market.

    The Canary Wharf brigade must operate & use the opposite terminology for all their decision making and policy structure as based on my survey of the adviser community! the opposite is true.

  13. “We are always conscious of costs and the overall regulatory burden but we also have to remember that, particularly in the market for financial advice, the existence of a regulator creates that market in the first place.”

    My grasp of history may be inadequate when it comes to the design and construction of a trebuchet but I do know that financial advice was around before 29 April 1988. In fact it’s been around in one format or another for over three hundred years.

    I know that my clients were happier and paying less for their advice before the clammy hand of regulation was envisioned.

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