Article: IFAs should review drawdown annually to avoid FSA clampdown | Publication: FT Adviser | Date: 16 January 2012 | Author: Donia O’Loughlin | Quoted: Andrew Pennie
Retirement specialist warns FSA wants to see “evidence of continued suitability” to take account of changes in clients’ circumstances.
IFAs are putting their business “at risk” if they do not carry out annual retirement reviews as the Financial Services Authority will be scrutinising this area post-Retail Distribution Review, pensions consultancy Intelligent Pensions has claimed.
Andrew Pennie, marketing director at the firm, said that the FSA’s reviews into product suitability reflected a shift on the part of the regulator to focusing on the ongoing suitability of products to client needs.
Mr Pennie told FTAdviser that products such as drawdown, which currently have to be reviewed on a three-yearly basis as a minimum requirement according to HM Revenue & Custom rules, could come more under the regulator’s spotlight.
He said: “IFAs are under increasing pressure to be able to prove to the FSA’s satisfaction that their ongoing drawdown advice to existing clients is fit for purpose.”
Mr Pennie said that overall drawdown assets are now estimated to be worth around £20bn and growing, with the regulator keen to ensure they are being managed correctly and clients given suitable advice over time.
According to Mr Pennie, the FSA wants to see “evidence of continued suitability” as clients’ circumstances change the advice must also change.
He said: “Advisers realise that regulatory action is a clear risk unless they can show robust drawdown review processes.”
Therefore, while Mr Pennie said that IFAs only need to review drawdown every three years, he believes there is a “strong case” for this to be reviewed annually.
He said: “Carrying out reviews at least annually is essential to avoid any risk of what was originally a suitable arrangement falling into unsuitability due to changes in a client’s needs, priorities or circumstances.”
However, he emphasised that IFAs need to ask the right questions. He pointed out that reviews need to focus on the client’s circumstances, including any change in their health and not just the investment performance.
Mr Pennie said: “Illness can strike in a short space of time and transform a retiree’s financial requirements. That means reviews need to incorporate a detailed health investigation.”
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