The FCA has confirmed it is reconsidering implementing set investment pathways for investors going into drawdown, in the wake of the Covid crisis and subsequent market turmoil.
In a letter to chief executives in the financial sector, the regulator said is was considering a pause on implementation of this new directive, which applied to those accessing drawdown without advice.
The decision has now be referred to the FCA board for consideration. The FCA also announced a relaxation of the rules which require investment firms to notify customers when their investments drop by 10 per cent.
AJ Bell chief executive Andy Bell welcomed this decision, pointing out that these pathways were designed to ensure customers didn’t keep too much in cash. In light of the severe stock market falls, this may not seem like such a risk to those taking an income from their retirement savings.
He says: “If there was ever a case study of why customers going into drawdown shouldn’t be funnelled into a single investment, Covid-19 and the resulting bear market is it.
“The fact that investment pathways in their current guise are outcome focused and not risk targeted is a major flaw. If they had been implemented six months ago there would be thousands of drawdown customers looking at heavy investment losses with little understanding of why they were guided down a particular path.”
He adds that concerns about people holding too much cash in their portfolios looks very different in today’s light.
He called for the FCA to go further and delay implementation of these pathways to give time for a fundamental rethink of what they are trying to achieve and the best way to implement them.
Aegon pension director Steven Cameron also welcomed this announcement.
“Investment pathways are designed to help non-advised drawdown customers choose a broadly appropriate investment solution but at the current time, this is particularly difficult even on a fully advised basis with a full understanding of the customer’s circumstances.
“Many customers will simply not be able to identify right now with one of the four prescribed retirement objectives. We support pausing implementation until we have insights into how current events will affect consumer behaviour, both in terms on investment decisions and on how much income individuals may choose to take from drawdown.”
Bell also welcomed the suspension of the 10 per cent rule. “This rule may be well intentioned but in times of extreme market volatility like we have seen recently the notifications are as useful as slipping a note under a cabin door on the Titanic advising that the shower has sprung a leak!
“They can increase customer anxiety and are a blunt instrument. The relaxation of the rules is a welcome development and will enable resources to be utilised on more important areas of servicing customers and advisers during the Covid-19 crisis.”
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