IFAs are being told they should not offer advice on income drawdown unless they are capable and prepared to provide ongoing management of the portfolio.
Compliance consultant Adam Samuel says that to offer an income drawdown service safely, advisers have to actively manage the fund.
However, he says few advisers are capable of giving drawdown advice and that there are far more people in drawdown than there should be.
Syndaxi Financial Planning managing director Robert Reid says he is concerned that some advisers see drawdown as the default option at retirement.
He believes advisers do not charge enough trail commission for ongoing reviews and that they should charge 1 per cent to cover costs.
Reid says: “I very rarely recommend it. Nine times out of 10, an annuity is better. It depends on how much money the client has and their ability to make decisions continually. It needs a level of administration that it probably does not get.”
Intelligent Pensions managing director Steve Patterson says drawdown should not be considered a mainstream product although there are circumstances where it is appropriate.
He estimates that there is around £18bn to £20bn in drawdown plans and believes the majority of this business does not have a well thought-out exit strategy.
Patterson says: “Income drawdown is a service rather than a product. The FSA should be focusing its attention on the back-end exit strategy but the problem is that regulation is focused on point of sale.
“Under treating customers fairly, the ongoing advice and suitability will come much more into focus.”