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GDT censured on withdrawal

‘Lack of explanation on the risks on income withdrawal can have dire consequences for clients in their retirement’

The FSA has publicly censured adviser GD Tancred Financial Services for failing to explain and document the risks of income withdrawal to customers with pension pots of less than 100,000.

GDT has agreed to vary its permission so that any new income-withdrawal business must now be signed off by a suitably qualified indepen-dent person. As a result of the FSA’s findings, the firm is also writing to all of its income-withdrawal customers to make them aware of the risks of the product and offering to review their circumstances.

The regulator says it uncovered the firm’s failings during its thematic study into how small firms give income withdrawal advice. It has asked visited firms to take remedial action, issued one firm with a private warning and given feedback to small firms in the market based on the findings of the review.

The news has highlighted the shared concerns of the regulator and the Financial Ombudsman Service over the highly complex and often high-risk area of income drawdown, where people can literally run out of income during retirement if given the wrong advice.

FOS spokesman David Cresswell says: “Income drawdown is on our radar. We only get around 100 cases a year but this is not a mass market product. We view these cases very seriously as they have a major impact on the customer and they are very complex to put right.

“It is a difficult area to advise on as advisers need to have a good understanding of how the product works and how it impacts the customer.”

Skerritt Consultants head of investments Andrew Merricks says: “The danger is that this public censure will put IFAs off advising on income drawdown despite the fact many clients like to take advantage of it to keep their pensions pot alive.

“It is a complex product to advise on because it needs a lot of hands-on monitoring of the underlying investments.

“A lot of IFAs don’t have the time, expertise or inclination to set up the underlying investments properly or to keep monitoring the investments effectively – in many cases this is because they are paid upfront commission. A common problem is customers taking too high an income from the pot and, because they are cautious, they invest the remaining money in low-risk areas where they really don’t stand a chance of getting the return they need.”

FSA head of investments small firms division Jonathan Fischel says: “Our recent work in this area showed firms need to do more to ensure that they get it right. In light of this, firms should review their business and make sure that sufficient controls are in place to demonstrate the suitability of any recommendations.”


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