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FCA proposes 'ready-made' drawdown investment paths

The Financial Conduct Authority (FCA) has proposed the introduction of ‘ready-made drawdown investment solutions’ to help consumers select suitable retirement products.

FCA proposes 'ready-made' drawdown investment paths

The Financial Conduct Authority (FCA) has proposed the introduction of ‘ready-made drawdown investment solutions’ to help consumers select suitable retirement products.

In a new consultation paper following its Retirement Outcomes Review (ROR), the regulator suggested that imploring providers to offer a more structured set of options would help consumers better engage with their investment decision and retirement objectives.

At the point of entering drawdown or buying an annuity, the regulator proposes imploring providers to offer three ready-made solutions, termed ‘investment pathways’, within a ‘simple choice architecture’, for customers with ‘fairly straightforward needs’.

These investment pathways could take the form of a multi-asset fund that a firm believes meets a broad objective, and these broad objectives will correspond to the various ways a consumer might wish to use their drawdown pot.

The FCA identifies three broad objectives individuals have for their pot in retirement: providing an income throughout retirement, taking it all out over a short period of time, or keeping their money invested long term and dipping into it occasionally.

The paper proposes the provision of one investment pathway for each broad objective, but invites respondents to offer further suggestions.

Although primarily targeted at non-advised consumers, the FCA states that pathways should also be open to those making decisions with the help of a regulated adviser. 'This is because there may be circumstances where an adviser concludes that an investment pathway is the most suitable option they can identify for their client,' the paper said. 

Providers will also be required to issue an annual review of investment pathways and provide ongoing information.

The FCA intends to roll out the investment pathway remedies to the whole of the non-advised drawdown market, including Sipp operators.

It also proposes extending the existing Independent Governance Committee (IGC) regime to cover investment pathways, in order to ensure independent oversight of the ‘appropriateness, quality and charges’ of the products such that they would be ‘in the interests of non-advised and less engaged consumers’. 

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