The Financial Conduct Authority’s retirement income advice review is going to cause more advisers to outsource their solutions, according to Christian Markwick, head of adviser support at The Verve Group.
Speaking at a press briefing yesterday (April 23), Markwick alongside Andrew Lewis, senior investment director, and Karl Heap, head of strategic partnerships at Brooks Macdonald, discussed the launch of their joint research on the decumulation market.
In response to the FCA’s review, Brooks Macdonald and The Verve Group published a retirement income whitepaper to help advice firms translate the FCA’s guidelines around building a central retirement proposition.
Markwick said the advisory and regulatory space around what advice firms need to do to demonstrate due diligence and to avoid foreseeable harm was already “naturally leading” advisers to outsource their investment solutions.
“On the back of consumer duty and the cross cutting rules of avoiding foreseeable harm we have already seen a huge change in how advisers mitigate the risks of running their own model portfolios because it's not feasible.
“Once advisers start to understand sequencing risk, longevity risk and the tools needed to do that they will realise while they may want to do it and have the skills and physical desire for it, they will need an investment manager to work with them,” he added.
A key finding from the whitepaper was that some of the biggest challenges advice firms will face will be around data, record keeping and the due diligence process.
Firm will need to look deeply at how they record all advice provided and this can be integrated into reporting documents for clients.
Markwick said: “Advice firms are trying to do the best they can and the vast majority are delivering good outcomes but it’s not being documented. The biggest challenge for advisers is to be able to articulate what they do and write it down.”
Lewis believed the FCA's review would give the industry the ‘kickstart’ to help advisers delivering retirement income advice.
He said: “As an industry we now have to learn, improve and evolve and may need to find new technology to help advisers out with retirement income advice.
“However, if advisers are struggling with elements of the review they should ask for help. I can guarantee it won’t be good for an advisers’ mental health to try and go through a 96-page document on their own.”
Another key finding from the report was that seven years was the key number when determining whether a client requires a decumulation strategy.
Lewis said: “Typically for us at Brooks Macdonald, we believe you need to manage your decumulation strategy in two parts.
"Beyond seven years you should take the highest possible risk your client is willing to take and has the appetite for. Below seven years you need to look at different investments.”
