Avoid foreseeable harm
This part of consumer duty raises the question of what foreseeable harm actually means. However, if you are aware of risks that could apply but ignore them, then you are clearly not avoiding foreseeable harm.
You cannot avoid these risks, but you can plan for them and can check that any decisions still work in terms of meeting the client’s needs, even if unfavourable events happened.
Avoidable harm could apply, for example, if you ignored the risk profile of the investment that was chosen. Advisers should clearly take this into account because it is obvious that if you go into a higher risk fund, the chance of a drop in values is also higher.
Not all risks are so obvious. However, many other risks are known but might not be given detailed consideration within the plan due to the perceived difficulty in quantifying them.
Technology can often help here, by deploying appropriate adviser tools to support in pinpointing various risks.
As mentioned previously, the sequencing of returns is one key feature of decumulation that is often ignored, but you would also need to look at the impact of dynamic correlation (in a crisis assets tend to align; if one falls significantly, all fall), the price of purchasing an annuity in the future, or the reduction in value that volatility causes in a portfolio that is decumulating.
Use your knowledge and experience to identify potential risks and ensure they are measured in the planning you do.
For example, you will need to ensure any cash flow exercise takes into account the risk factors – market risks, sequencing risks, volatility drag and others that are well known.
You will need to ensure you have a variability in the future returns to do this, such as that provided by a stochastic output.
If you are aware of a risk but ignore it, be very wary. These things can and likely will come back to bite you.
Enable and support customers to pursue financial objectives
This cross-cutting rule focuses on ensuring clients can achieve their aims. These objectives are often more than just numbers or money, but nearly always there is a desired financial lifestyle sitting behind everything.
A good adviser will be able to extract from the client their life objectives, turn that into a financial plan and then check to see if it is feasible.
This includes seeing if objectives could be achieved earlier than first anticipated, and that is all part of the support that good advice can provide.
In streamlined advice, objectives can be more specific, such as aiming for retirement or achieving a short-term goal.
