What story do your files tell?

The FCA’s Retirement Income Advice thematic review seems to be gathering momentum and the latest developments come as no surprise.


We’ve commented upon the survey in recent articles and are aware that some of the 1,300 or so firms that were sent it have now been asked to submit files by the regulator, who will be performing desk-based reviews of these prior to announcing their findings at the end of the year.

These may reveal that everything is tickety-boo and that the files evidence that all is well from an AML and initial disclosure viewpoint, appropriate services have been agreed for which the client knows what (and how) they will pay, fact finds and meeting notes provide detailed KYC data with clearly defined client objectives, attitude to risk/capacity for loss have been clearly established, robust research supports the recommendations which are articulated clearly in well written suitability reports and where an ongoing service has been agreed the client knows what to expect and the firm is able to demonstrate that this offers fair value. You have performed your Fair Value Assessments haven’t you?

From the files it may also be clear that where existing contracts were replaced, they were proven to no longer meet the client’s needs and objectives and that the recommended replacement offered good value, providing tangible benefits over the ceding arrangements. Clear cost and (where appropriate) performance comparisons are evident and the solutions can be demonstrated to be clearly in the client’s best interests.

For retirement planning cases, all options will have been considered of course and relevant risk warnings will have been provided (there’s plenty in COBS 19.7 on this), so all will be well and the FCA will issue commentary that there is nothing to see here.

Or perhaps not…

In the majority of the regulator’s previous thematic reviews the findings have followed a broadly similar pattern, with the results split fairly evenly between suitable, unclear and unsuitable. There have been variations of course, but there are probably no prizes for guessing what the outcomes are likely to be this time.

We could be wrong of course, but based on our experience (and we check a lot of advice files), we think that it is likely that the FCA will flag up some concerns, possibly on the lines of:

  • Weak/inadequate KYC
  • Generic client objectives, often product-led with little definition, on similar lines to: the client is looking access FAD, aiming for long term growth, wants active/discretionary fund management, etc.
  • Clients being recommended to move away from existing arrangements that appear to meet their needs and objectives
  • Lots of recommendations to move to firms’ preferred platform/portfolio/DFM combination
  • Files lacking clear cost comparisons and clients perhaps incurring additional costs that they apparently don’t need to bear
  • Clients taking their PCLS and leaving it in a bank account
  • Recommendations that clients move to more ‘modern’ contracts which provide access to Flexi Access Drawdown when the client is years away from taking benefits
  • Files where FAD is the only consideration and UFPLS/annuities are summarily dismissed
  • Clients in drawdown making withdrawals that will exhaust their funds quickly, or using FAD like an instant access account
  • Clients paying for an ongoing service that they either don’t receive or year on year makes no change
  • And so on…

This isn’t an exhaustive list but you’ll get the picture and if these findings are widespread then it doesn’t take a genius to work out what could happen as a result. The FCA has pilloried some advisers recently and fined them very heavily. There also appears to be a tangible change in focus away from DB, so the regulator is setting its sights elsewhere, but is clearly willing to take action where issues arise.

We knew this review was coming because the FCA told us so in January. DC is a colossal market and at some point most consumers will want/need to access their funds, so it’s not really a surprise that retirement income/options have fallen under the spotlight. The advice they receive could impact clients for the rest of their lives, so this really is a big deal.

So how do your files stack up?

Will the files resemble those described above and be a mystery for paraplanners and report writers, requiring the skills of a detective to unravel? (is that a cry of “you’re not kidding” from some of the paraplanners out there?). Or will they provide a clear audit trail where the fact find provides all the hard and soft facts with lots of commentary in the client’s own words, and advice that can be clearly evidenced to be in their best interests?

Poor files are more often than not where it all starts to go wrong for firms. We’ve seen it so many times before, where the FCA checks a relatively small number, identifies the issues outlined above and takes the view that these are effectively systemic if there’s enough evidence. This then raises questions over the firm’s governance, systems and controls and the casts doubt on the people in charge. You don’t need a great imagination to figure out where it goes from there – past business reviews and even Section 166 Skilled Person Reviews enter the equation (deep pockets required for these), all because the firm’s files didn’t tell the story.

Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

ATEB Compliance offers compliance and regulatory advice.

ATEB Suitability provides report writing software for the financial services market.

Our View

The findings from this thematic review could have a big impact alongside Consumer Duty. Firms that aren’t able to evidence that their one real product – advice – is suitable, may for the first time experience what it’s like when the FCA actually comes calling. A fair proportion of the firms ATEB deals with thought that it would never happen to them, but it did. Judging by recent action taken by the FCA it seems that they really are willing to take firms and individuals to task when they identify issues. From our observations, file quality in many firms still hasn’t improved markedly and in some instances it may have even declined, so this could be an issue for some. Fundamentally, it’s about getting the basics right, but so many firms still fail to do so.

Action Required By You

Make sure your firm’s files are up to scratch and that they will stand up to external scrutiny. If you don’t get them checked already it’s probably time to get some reviewed. Contact your ATEB Consultant if you need help.
SUIT - Beautiful Reports
SUIT - Complete Control
SUIT - Comp confidence
previous arrow
next arrow

About the Author

Paul has in-depth experience across a wide spectrum, having headed up compliance, T&C, monitoring, oversight and MLRO functions previously. He was also an IFA for some time so can see things from more than one angle.

Contact Us

Brought to you by

Explore more articles in this category

Other articles that you might be interested in