We wrote recently about the coming of investment pathways and what it means for advisers. See here.
Although the rules are primarily aimed at drawdown providers, there is some very brief GUIDANCE for advisers that states:
- When a firm is making a personal recommendation to a retail client about the investment of funds in the client’s capped drawdown pension fund or flexi-access drawdown pension fund its suitability assessment under COBS 9.2.1R(1)(a) should include consideration of pathway investments.
- Pathway investments do not need to be considered where the personal recommendation is to purchase a fixed-term product that: (a) provides a guaranteed income, a guaranteed capital return or both; and (b) does not expose the client to investment risk, if the client remains in the product for the fixed term.
Now that we are beyond the go live date of 1 February, it is possible to actually see some of the investment pathway solutions that providers have created. A quick Google search and click through to one or two provider sites will aid advisers’ understanding of what the pathways are and are not.
For example, clicking through to LV shows:
The investment pathways are the four statements that providers will have to ask of non-advised clients and the funds are the pathway solutions.
This link takes you to the fact sheet for Pathway option 1.
By definition, this fund was designed to be appropriate for a client who would relate to investment pathway statement number one. We don’t doubt that it is indeed appropriate, but it is important to note that different providers may well have different ideas of what asset allocation is appropriate – this is not an exact science.
Note the risk ratings. Pathway solutions are not risk free. Some pathway solutions are simply based on established funds. For example, the LV solutions are based on two L&G funds, one Vanguard fund and one LV fund. However, since some pathway funds might be brand new, there could be no investment performance data to consider for a while.
Note the fund charge, pretty low in the scheme of things (a wrapper charge of 0.20% would apply in addition) – other providers we have looked at seem also to be pitching at around the 0.25% level. There is no price cap on pathway solutions under the rules, but the value assessments now required of all funds do apply so it would appear that these new funds have taken that on board from outset.
The key point is that the pathway solutions are nothing mystical – they are just funds, albeit with some degree of matching to the broad statements above (as interpreted by the particular provider).