Advice Guidance Boundary Review: FCA consults on a proposed new regime of targeted support for pensions

As promised in its feedback statement to its Advice Guidance Boundary proposals (set out in DP 23/5), the FCA has published its first consultation paper on how its proposed “targeted support regime” could operate for pensions (for background see our earlier blog post here). The paper sets out the role that targeted support could play in supporting consumers, “at scale, [to] make effective, timely and properly informed decisions about their pensions,” as well as seeking feedback on the standards required to ensure targeted support is delivered to a high quality. 

No specific rules are being consulted on at this stage – given the significant change the FCA’s proposals entail, initial feedback is requested on the proposed direction in the first instance, with a consultation on the rules themselves expected in summer 2025.  Feedback to the proposals in this consultation will also help to share the FCA’s consultation on (i) how targeted support could apply in a retail investment context  and (ii) proposals for simplified advice (expected in H1 2025). 

There is currently no expectation that firms would be required to provide targeted support – the FCA continue to consider the best approach is for it to be an activity that firms can choose to provide.  However, given that widespread provision could create a strong expectation for consumers that they will be offered support, the FCA is consulting on whether there is a case for requiring all pension providers to provide targeted support

The background – and the Consumer Duty overlay

The key driver to the FCA’s AGBR is ensuring that authorised firms that do not hold a permission for advising on investments (RAO Article 53) are nevertheless able to offer appropriate support to consumers making decisions about investments.  Such firms can currently provide guidance or give non-personal recommendations, however fears about inadvertently crossing the advice boundary, concerns about the economic viability of doing so at scale, or of being liable if the support goes wrong means that in practice the guidance on offer to consumers often doesn't go far enough to help them feel confident to make more complex financial decisions.

The landscape is also evolving with the Consumer Duty – in considering the support they give firms must have regard to their obligations to act to deliver good consumer outcomes.  Whilst the FCA acknowledge that the Duty does not require firms to give advice where they would not otherwise have done so, they also say that taking an unduly conservative approach to the advice guidance boundary may not deliver good customer outcomes.  The FCA’s supervisory expectation is that firms should not hesitate to provides such support simply to avoid coming closer to the boundary,  but acknowledge that even with this in mind a gap remains  - targeted support is intended to fill this gap. 

How does the FCA see targeted support working from the consumer’s perspective?

From a practical perspective, and to maximise its effectiveness, the FCA envisage this as an opt-out service for consumers where firms choose to provide it.  However, it needs to be provided in appropriate circumstances so that consumers trust it and do not simply see it as a form of marketing. With this in mind the FCA propose the threshold being where a firm has reasonable grounds for believing that the delivery of targeted support suggestions would deliver a better outcome for their customers than if that targeted support was not provided. 

When creating a targeted support service, firms would firstly be expected to pre-define relevant scenarios and customer segments.  Firms would then pre-design ready made solutions to align with the common characteristics of the customer segment they are designed for – and “better outcomes” would need to underpin solution design.  With the exception of certain restrictions related to the annuity journey, the FCA does not expect to impose restrictions on the substance of firms’ ready made solutions.

In terms of delivery of targeted support to consumers, the FCA envisages firms undertaking a verification process in order to allocate a consumer to a pre-defined consumer segment, in order to thereby suggest a ready made solution. To ensure certainty, firms will require FCA guidance and rules to flesh out the standards it expects firms to adhere to in terms of verification  - and there is a tension here between firms working with limited data versus the need to ensure consumers receive high quality suggestions. The FCA is clear that the verification process is not about conducting an individualised assessment – but the devil will be in the detail. 

Another key area for consideration is the information that firms already hold about a consumer – this cannot be ignored – particularly where that information means that the consumer would not achieve a better outcome through a ready made solution or that a consumer segment allocation would be inappropriate.  The FCA will need to think carefully about how to address this.

With the expectation of the targeted support service being an opt-out service from a consumer perspective, there are also key questions to answer around what the approach should be in relation to customers already getting support in the form of holistic advice (given the risk of mixed messaging). 

Consumer understanding of the service and disclosure by firms will be a key piece of the puzzle. The FCA does not expect to be prescriptive about the format of targeted support disclosures and instead intend to rely on the Consumer Duty with specific additional requirements only where necessary. 

How will targeted support be implemented and do we have clarity on the rules that will apply to firms?

The question of where targeted support would fit within the regulatory framework is still an open question and one that the FCA is working closely with Treasury on. The FCA's original discussion paper set out a few options for how targeted support could be implemented including:

• introducing a new regulated activity;
• creating a new sub permission within the current advising on investments activity; or
• allowing authorised firms to carry out targeted support where they have certain existing permissions linked to relevant products.

Ultimately changes to the regulatory perimeter are a decision for Treasury. 

In terms of the general approach to setting a regulatory framework for targeted support the FCA’s intention is to use existing requirements where possible - and the FCA’s existing Consumer Duty and PROD rules are seen as a critical underpinning to achieve this – both in designing a targeted support offering, and in its delivery.

The Proposals also set out the wider requirements for authorised firms that the FCA consider will be relevant to the provision of targeted support – the FCA is proposing only minimal substantive changes where it considers it necessary.

Next Steps

The consultation closes on 13 February 2025.  In the meantime the FCA continues its work on developing related targeted support proposals for wider investments. The plan is to consult on detailed requirements with draft rules and guidance by the end of the first half of 2025 that will apply across retail investments and pensions.  An update is also expected on the FCA’s work on simplified advice and providing further clarity around the advice guidance boundary