INVESTMENT PATHWAYS

The FCA implemented Investment Pathways in February this year, but were the implications for providers and non-advised clients or does this affect advisers too?

Ultimately, Advisers need to be able to demonstrate the value of their Drawdown advice; much like every piece of advice.  Investment Pathways weren’t designed to replace advice as they don’t take into account a client’s attitude to risk nor their detailed needs and objectives.  Advice will naturally take this into account.  So, how can Advisers show value in relation to the Investment Pathways?

Advisers can show value in:

Considering ATR

Considering CFL

Advising on an investment solution that takes into account ATR, CFL and Income requirements

Using Cashflow to show suitability and sustainability, utilising stress testing 

Taking into account client specific needs and objectives

Cashflow could be used to help demonstrate added value and the suitability and sustainability of the Drawdown income being recommended.  It would be useful for the information obtained on expenditure requirements to be detailed and be split between essential/core and non-essential/discretionary or even three ways such as referred to in the Pension Transfer Guidance issued recently by the FCA (FG21/3), some of which could also be utilised in Drawdown advice.

We have seen that some firms are adding wording to their Suitability Reports to explain about what Investment Pathways are and directly comparing their recommendation and/or pointing out the limitations of Investment Pathways. We feel that this would be Best Practice and open and honest with clients.  Advice should consider the Investment Pathways and explain to a client why any recommended investment is more beneficial than the provider fund they could choose based on Investment Pathways.   

This gives advisers a real opportunity to show the difference between a non-advised solution and that of an advised solution and the importance of receiving advice that takes into account their personal circumstances, needs and objectives.

Kirsty.turner@ifac.eu