Targeted support – the FCA consults on bridging the advice gap

Setting out a bold vision for how consumers can access financial guidance, support and advice, the latest consultation paper (CP25/17) reflects the FCA’s five-year strategy for growth and aligns with the government’s broader Mansion House reforms. It aims to help close the persistent ‘advice gap’ and builds on earlier publications reviewing the advice guidance boundary (CP24/27 and DP23/5). This is particularly important in light of auto enrolment in work pension schemes – making pensions and investments more accessible to everyone, regardless of wealth. As such, the sector needs effective mechanisms in place to make pensions and investments more consumer centric, with greater understanding and more support available to help consumers meet their long-term goals and investment pathways for retirement plans.

Addressing the advice gap

Despite the growing complexity of financial decisions, the latest Financial Lives survey highlighted that only 9% of UK adults received regulated advice on pensions and investments in the previous 12 months. Meanwhile, the Department for Work and Pensions (DWP) estimates that one-third of working-age adults are under-saving for retirement.

Among those individuals who do have savings, 61% of adults with £10,000 or more in investable assets hold most in cash -highlighting a widespread reluctance or inability to invest. The FCA notes, “Of those who do not receive financial advice, but hold £10k+ in cash savings, a quarter (24%) say they don’t invest because they don’t know enough, 12% because they feel overwhelmed and 8% say they would like to but need support”. This underscores the extent of the advice gap and the need to boost confidence and empower consumers.

To address this, the FCA is proposing two new regulated propositions to bridge the gap between generic guidance and full holistic advice:

• Targeted support – tailored suggestions based on common consumer characteristics, without requiring a full fact-find.
• Simplified advice – a streamlined form of regulated advice focusing on a single, straightforward consumer need.

Ultimately, these approaches aim to make support more accessible, scalable, and cost-effective - particularly for consumers who are under served by traditional advice models.

Getting to grips with targeted support

Targeted support goes beyond the current boundaries of unregulated guidance. It will allow firms to provide specific suggestions, rather than just factual information, based on a consumer’s profile or behaviour. Examples from the consultation include:

• Under-saving for retirement – firms could suggest a revised pension contribution rate where they identify a consumer may be under saving.
• Pension access decisions – firms might recommend a more tax-efficient withdrawal method, such as using an uncrystallised funds pension lump sum or suggest an alternative withdrawal rate.
• Ready to invest – firms could suggest a suitable investment or pension product.
• Holding investments – firms might recommend switching to a fund which would offer better value.

Firms should deliver this support where there are reasonable grounds to believe that a consumer would receive a better outcome than if it wasn’t provided. They would also need to pre-define the situations, consumer segments and ready-made suggestions that would apply. On this point, it’s important to note a slight terminology change from the previous FCA papers on the topic. The regulator’s previously used the terms ‘scenario’ and ‘ready-made solution’, but they’ve since updated it to ‘situation’ and ‘ready-made suggestions’. This is most likely to make it clearer that this is not advice.

Alignment to existing regulation

While the targeted support will not be subject to suitability standards in COBS, it will align to the Consumer Duty and Principle 9 of the FCA Handbook. In CP25/17, the regulator notes that firms must have “a reasonable basis for determining that ready-made suggestions are suitable for all consumers in the group, and that firms must assess suitability by reference to the relevant common characteristics.” As such, it’s essential to take reasonable steps to keep customer information for segmentation up to date.

To enable the new journeys, the FCA has proposed a bespoke conduct framework and a dedicated authorisation gateway. Importantly, the regulator intends to leverage the Consumer Duty to ensure firms act in good faith and deliver good outcomes, while avoiding unnecessary regulatory duplication.

It will be a delicate balance for the regulator to achieve rules that provide enough clarity, but that also allow firms to use their own discretion to act in the best interests of consumers. In this regard, the FCA is proposing new outcomes focussed conduct standards and has drafted rules which will make up COBS 9B.

Proposed exclusions for targeted support

To safeguard consumers and maintain clarity around the regulatory perimeter, the FCA proposes several exclusions from the scope of targeted support in CP25/17:

• Consolidation – firms would not be permitted to suggest consolidating pension pots into or out of a specific product, due to the complexity and potential for consumer detriment.
• High-risk or complex investment products – firms must exclude these products (including speculative illiquid securities, leveraged instruments, and non-mainstream pooled investment) from any ready-made suggestions.
• Particular annuity products – firms can suggest the use of annuities, but not a particular annuity product due to the irreversible nature and long-term implications of annuity purchases.
• Provision of support that relies on a full fact find or detailed personal financial analysis – this would need a more traditional personalised recommendation.
• Use of targeted support to steer consumers toward specific tax or estate planning strategies – this would require holistic advice.
• Appointed representatives – HMT will confirm this point, but initially only directly authorised firms can offer targeted support so appointed representatives are excluded.

These exclusions aim to ensure that targeted support focuses on mainstream, lower-risk solutions for consumers with relatively simple needs, and does not inadvertently cross into areas requiring full regulated advice.

Treatment of vulnerable customers

The FCA is unlikely to introduce specific requirements for treatment of vulnerable customers. However, it will expect firms to meet broader expectations in this space including the Consumer Duty. Firms need to actively consider vulnerable customers’ needs during: the design and implementation stages of any support services; the discussion of consumer segmentation; and for pre-defined situations that underpin the new support or advice propositions.

As with other areas of advice, the FCA expects firms to monitor outcomes for vulnerable customers and make appropriate interventions to avoid foreseeable harm, where necessary.

Getting to grips with simplified advice

The FCA is not moving the simplified advice regime forward in the structure presented in DP23/5, instead opting to achieve the same goals through existing regulatory approaches. This aligns with the FCA’s long-term aim to simplify the Handbook.

The current rules do allow for simplified advice as a regulated recommendation, based on essential information and a single financial need. However, the FCA acknowledges that firms and consumers lack confidence and need more clarity. Consequently, the regulator will publish a further consultation next year to explore how to deliver simplified advice safely and effectively, without the burden of a full holistic advice process.

Next steps for firms

Authorisations are due to open in mid-October for firms wishing to provide targeted support, and the final policy statement is due in December. The FCA will follow up in January with further details on the advice guidance boundary, and a consultation on simplified advice.

Reflecting a significant shift in regulatory thinking, the proposed changes offer a middle ground between guidance and full advice. However, firms will need to review the consultation carefully and consider the following key points:

• Whether to update the business model and enter the targeted support or simplified advice markets.
• How to design and price compliant customer journeys that meet the new conduct standards as well as existing rules around managing conflicts of interest.
• How to clearly identify cohorts of customers that will fit these models of targeted support (or simplified advice), and be able to move clients between different offerings as appropriate.
• How to identify client segments, with sufficient granularity, for which to apply pre-defined and ready-made suggestions.
• How to identify whether customers using these services are more likely to achieve good outcomes than if that support had not been available.
• How to identify and demonstrate the services will help consumers avoid foreseeable harm.
• How to define good outcomes under the Consumer Duty and monitor and oversee these outcomes.
• How to ensure that communications are compliant with the new rules, clear and easy to understand. This is particularly important considering the targeted support market may be consumers with limited knowledge and experience of financial products.

Industry feedback is vital to help shape future regulation through innovative, practical and proportionate approaches to reduce the advice gap and support consumers. With a short consultation window, CP25/17 is open to comments until 29 August. However, firms can begin by assessing how they could maximise these opportunities to close the advice gap, recognising the value in a first mover advantage in the long term.

For further information, contact David Morrey.