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Should FCA toughen up on non-advised drawdown?

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The FCA is being urged to introduce a warning system for savers in non-advised drawdown amid concerns their pots could be eroded away as stock markets plummet.

Drawdown sales have rocketed in the wake of the pension freedoms, with thousands of customers exposed to stock market risk in retirement without speaking to an adviser.

At the same time share prices have tanked, with the FTSE 100 down from over 7,000 in April 2015 – the month the freedoms were introduced – to around 5,700 today.

Just Retirement director of external affairs Steve Lowe says the regulator needs to consider introducing protections for savers entering non-advised drawdown.

He says: “Drawdown is becoming almost the default in the non-advised space, and these customers are getting no reviews.

“The theme that ran through [FCA consultation] CP15/30 was ‘we are very concerned about sustainability’. So should you ever allow a drawdown product to be sold when you are exposing customers to that kind of risk, unless there are some kind of instituted reviews?

“That might be a review a provider has to do by giving customers an alert every time their fund moves by a certain proportion, or a questionnaire that is sent out to determine whether it is still suitable for their needs.

“The FCA are alert to this but they need to accelerate their work, because customers are exposed materially to this risk.”

Standard Life has introduced a default non-advised drawdown solution based around splitting funds into three pots containing different risk assets. In September last year the provider revealed direct drawdown had become its “fastest-selling solution ever”.

Standard Life head of pensions strategy Jamie Jenkins says: “I’m in favour of ensuring customers are communicated to about these sorts of things but I think it would be a mistake to legislate immediately. There is nothing stopping providers from doing this today.

“Providers can innovate around this and then the FCA can scrutinise those communications and legislate if they decide it is necessary.”

Just Retirement is also calling on advisers to ensure they have a process in place to review drawdown clients’ income needs.

Previously advisers had to review this regularly under capped drawdown rules.  However, this requirement disappeared following the introduction of the pension freedoms in April last year.

The FCA declined to comment.


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There are 15 comments at the moment, we would love to hear your opinion too.

  1. Lol. I love this. If they had had any sense about them at all the FCA would have banned non-advised drawdown from the get-go. That would have been the sensible thing to do but then it would not have given them “an out” to go after providers in years to come saying “Sorry your 3 line wording in para 4 on page 56 of 123 of your document is just not quite clear enough so the consumers have been screwed. Therefore pay a bazillion quid in combo to those morons who acted on their own stupidity”.

    It is ridiculous situation but hey that the modern day for you. Everyone but the idiot who acted on his mates advice while at the pub will be to blame.

    • Living the Dream Dream ..... 12th February 2016 at 10:03 am

      Marty Y …
      I do think you are a shinning example to the new modern, caring and qualified UK adviser the way you keep referring to clients (you fail to capture) as ‘idiots’
      Mmmmm …… we’ll do e you!

  2. It does seem extraordinary (though perhaps not unusual) that the FCA has allowed DrawDown on a non-advised basis (or has it been merely a failure ~ yet another failure ~ to consider properly all the dangers?), given that even on an advised basis it’s widely considered to be a potentially high risk area.

  3. Funny yet so true Marty.
    I was had on one of those – it was painful and very annoying with no right of reply.

  4. In my opinion there is no problem with non advised drawdown. There always has been and always will be a proportion of people who can’t manage their affairs, financial or otherwise.

    Providers need to ensure their communications are clear and concise, surely they should be anyway.

    I have begun to get concerned about the number of people on various forums and in comment sections who want compulsion to see an adviser. The vast majority of people don’t need to see an adviser. It would be a waste of money for the vast majority.

    My clients appreciate what I do for them and pay for my service.

    Business can’t be too rosy for some IFA’s, why else the calls for compulsion.

    • I agree with you Adrian, I don’t have an issue with “non advice” but where a client has taken the option of “no advice” they should “NOT” be allowed the right to then complain and seek protection of the FSCS

      I will be quite honest and state, I do not offer and non advice service or acknowledge an insistent client, and I do think these two in particular do allow and carry a great risk for business to be written (advisers and providers alike) as a default option because is easier and less hassle to sign a file off as being non-advised or the client was insistent ! …. now this is the elephant in the room !

      In my 25 years I have only ever transacted one ex only case never been asked to provide a non advice service, and never had an insistent client ! however there have been plenty of occasions where I could have…….. If so inclined

      I, like you, don’t believe in compulsion……….its rarely the answer to many things, but we work in a industry where most of the we do is compulsory and yet, never really tackles the real issues !

      • I sort of agree with you to a certain extent D H but not totally. I do offer a non-advised service to existing clients but not for drawdown. If I get a phone call to increase regular contributions to ISA, OEIC or pension or invest small lump sums (at or below ISA limits) into existing plans then I will do it . When a client asks me if I can arrange a top of £50pm or £100 pm to one of the above, I ask them 2 questions. “Are they happy with the existing plan and its funds?” and “Has anything changed that may have changed their attitude to risk and their capacity for loss? If the respective answers are Yes and NO they can formally put the request in writing for me to I arrange and implement this. If nothing has changed for the client why should they pay me full advice charges for a very simple transaction? They need to confirm the exact decision they have taken and what they want me to do. They MUST hand write a statement that they have taken the decision with no input from me and do not want financial advice regarding their decision. I do charge for this but it is a fraction of what of what it would be if full advice is provided. Typically the charge is £150, which I consider to be reasonable considering my minimum charge for full advice is £645. If the letter is forthcoming in the manner described, I request/download the provider’s paperwork and forward to client. Upon its return will forward for processing.If the answers they give are anything other than YES or NO then we arrange to meet to discuss the issues and invariably it leads to an advised solution.
        I truly believe that not everyone needs full advice for every transaction as some are really simple and straightforward, however I am a firm believer that I get paid on every occasion for what I do. Not really a blog on the topic in question but it seems to work for me and the odd client that it is applicable to. I probably do no more than 2 or 3 a year but rather do that than not accept my clients instruction and have him or her naff off elsewhere and do it via a non advised website. It is for existing clients only though, not “newbies”

        • Yes Marty, you are right, I was commenting in the context of a new investment, not top ups, but then again there is always some advice in the vast majority of cases, reviewing risk, funds, if the plan is still appropriate etc etc etc, non advice is clear in my world, No advice sought or given (execution only if you will) most people who “i want” will normally ask some sort of advisory question, once you answer said question you have given advice.

          With that in mind I have never fathomed out how the likes of HL and others get away with it on such an industrial scale ?

  5. Once again discussions turn to reactionary measures due to the FCA failing to legislate for obvious consumer risks pro-actively. It was clear to most sensible financial services professionals that non- advised drawdown would inevitably result in poor outcomes for a significant proportion of those entering drawdown.

    Why does it take until the first mini market crash since the Pension Reforms were introduced to push the issue back up the agenda. Market crashes are inevitable, therefore pound cost ravaging for drawdown pots is inevitable. Many consumers won’t have understood how to protect their capital or ensure they have a safe haven cash reserve for the lean years, so many will now be looking for someone to blame when they realise they have just lost a ¼ of their fund in the first year of drawdown.

    The FCA could easily have seen this coming and introduced simple measures to help consumers avoid the risks. Preventing non advised drawdown from outset would have been one option, or at least limiting access to HNW or sophisticated investors only. However, a more sensible approach could have been to stipulate that providers could only accept non advised drawdown if funds were invested in funds or asset classes that satisfied strict risk criteria with appropriate asset allocation and risk, or direct commercial property ownership for SIPP members. Yes, this could have been tricky to introduce and may have required a little more forethought, but it would have also saved thousands of consumers from retirement poverty and providers from a stream of future compensation claims and increased FSCS levies.

    The complaints companies will be rubbing their hands waiting for the wave of discontent to fuel the ‘drawdown mis-selling scandal’. In reality providers have simply had to react to consumer demand driven by the chancellor, desperate to boost consumer spending and increase inflation to help cut government debt.

  6. Advised or non-advised, I’m just waiting to see the claims to the FOS come pouring in. This pension freedom nonsense is going to haunt its architect – Orrible Osborne and those (advisers & clients) who were foolish enough to buy into it.

    The current market volatility is making annuities look pretty good. Just imagine how much better off those would have been if they had purchased their annuity last year. “A bird in the hand?”

  7. There are three issues here, firstly is drawdown appropriate, is the rate of income withdrawal appropriate and lastly is the provider appropriate.

    IMO, the third of these is the most straightforward. The biggest issue will be customers taking too income. Few see beyond the view that they want as much income as possible.

  8. IMO, the biggest problem is customers thinking they have a bank deposit and simply choosing as much income as possible.

  9. @ Living the dream

    I don’t know your background or experience but in my 30 odd years I can definitely assure you that there are no shortage of idiots out there.

    Marty Y and I not only failed to capture them, we actively turned them away, preferring to deal with clients who actually had a brain. (Of which there also no shortage and on average they tend to be a lot better off and a better business proposition all round)

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