accelerated drawdown - " regulatory risk"

bmm78

A softening on the regulatory stance towards drawdown was hinted at in the FCA report. Well, to be more precise it was a hardening of the stance towards annuities, as it was suggested that they were a risky product whereas the traditional view has been that they were the default option for retirement income.

The regulator's main issues have been regarding the sustainability of income, capital erosion, and investment returns being less than expected. The assumption appears to have been that the client is dependent on the income, and needs it to last until their death.

Difficulties with FOS can arise because the regulatory framework does not acknowledge any middle-ground between "advice" and transactions not involving advice (eg Execution-only). Responsibility for the recommendation lies with the adviser, regardless of whether the agreed course of action is 95% client driven with minor intervention from the adviser.

There is also the issue that complaints often come from people other than client - "Dad would never have wanted to blow his tax free cash on a Thai bride when he could have left me with the whole lot instead" type complaints.

The regulatory stance conflicts not only with the recent budget, but also common sense and the growing desire/ability for people to make informed decisions without having their hand held all the way.

There really does need to be a rethink, as people generally fall somewhere on the spectrum between the two extremes. Even someone with a clear and educated strategy may want a bit of specialist technical help, without needing to be prescribed exactly what to do.

As it is, a lot of regulated firms are scratching their heads over how the regulator,
FOS and their PI Insurers are going to feel about large volumes of pension-stripping business on small funds.

zagfles

But how does it work now? We've had flexible drawdown for a few years.

dunstonh

zagfles wrote: »

But how does it work now? We've had flexible drawdown for a few years.

And it results in a very tiny amount of transactions and is used by people who have secured income for life and can have capacity for loss and can take on investment risk.

Going forward, we have open season on it.

bmm78

The FCA actually state that they consider Flexible Drawdown to be higher risk than Capped Drawdown.

While there is a greater scope to make a mess of it, the impact of doing so is considerably less. They don't seem to factor this into the equation though.

With the floodgates open for universal Flexible Drawdown, but without any secure income requirement, there is a clear disconnect between the government's stance and that of the financial service regulator.

dunstonh

Why is it considered higher risk than drawing down income from any other source?

Historical reasons. Part nanny state. Part complaints made and a liberal ombudsman who feels people are stupid unless proven otherwise. There isn't much logic in it with modern products and options. It should be viewed as just another tax wrapper but it is not at this time.

I'm an engineer to apply logic to everything I do. If the regulators don't, then someone maybe needs to change and it's not going to be me!

I read a selection of the FOS complaint outcomes. Always handy to know their stance. Recent one saw them uphold a complaint about a company director (own company) with a successful business and investment properties. He went to an IFA for advice and was given a portfolio of funds. Nothing racy. Just your normal unit linked funds. The ombudsman decided that he was not sufficiently sophisticated or knowledgeable enough to invest in specialist funds and should have been put in the cheapest multi-asset fund the pension provider offered. Put aside your views on passive/managed for the moment. Thats not for this thread. These funds were not weird or unusual. The portfolio was not outside the risk profile. The ombudsman was treating single sector funds as specialist and was treating a successful company director with investment properties as if he was stupid and needed protecting from himself. There was no issue reported in the documentation. Nothing about missing risk warnings or failures in administration. That is what you have to contend with.

So, if I take advice, it's likely that I won't be presented with the option to pursue some entirely logical and beneficial disinvestment strategies simply because they could result in the adviser being fined?

If the risks are too high then you will see advisers withdraw from those areas.

I suspect we will see a softening in approach but I really hope the regulator is pro-active on this and gives guidance on what is required otherwise claims companies are going to phone people up and people with annuities they will say they were mis-sold and should have been invested to provide income and vice versa for the others.

zagfles

dunstonh wrote: »

And it results in a very tiny amount of transactions and is used by people who have secured income for life and can have capacity for loss and can take on investment risk.

Going forward, we have open season on it.

So it's OK to be 'missold' something if you have other funds available?

Thrugelmir

dunstonh wrote: »

The Govt wants consumers to decide and thinks they have the responsibility. However, the regulator (and ombudsman) think the complete opposite and treat drawdown as high risk.

The Government is quite rightly suggesting that individuals should have full access to their savings. However consumers still need to make an informed decision based on all the options.

Thrugelmir

OldBeanz wrote: »

How much did L&G's share price drop in the past week?

Asset Management companies are equally as likely to benefit in the new era. So highly possible shares are currently oversold.

gadgetmind

bmm78 wrote: »

With the floodgates open for universal Flexible Drawdown, but without any secure income requirement, there is a clear disconnect between the government's stance and that of the financial service regulator.

As it sounds like the regulator needs a right good dose of clear thinking, such a clash is to be welcomed IMO.

Let's just hope such petty differences aren't allowed to restrict people's retirement options moving forwards by watering down of the very clear "no caps, no annuity" stance.

Aegis

dunstonh wrote: »

I read a selection of the FOS complaint outcomes. Always handy to know their stance. Recent one saw them uphold a complaint about a company director (own company) with a successful business and investment properties. He went to an IFA for advice and was given a portfolio of funds. Nothing racy. Just your normal unit linked funds. The ombudsman decided that he was not sufficiently sophisticated or knowledgeable enough to invest in specialist funds and should have been put in the cheapest multi-asset fund the pension provider offered. Put aside your views on passive/managed for the moment. Thats not for this thread. These funds were not weird or unusual. The portfolio was not outside the risk profile. The ombudsman was treating single sector funds as specialist and was treating a successful company director with investment properties as if he was stupid and needed protecting from himself. There was no issue reported in the documentation. Nothing about missing risk warnings or failures in administration. That is what you have to contend with..

That's really worrying - do you mind PMing me the information I need to find that decision notice, as I'd really like to digest that and report back to my colleagues.