Advice/Guidance Boundary Review: FCA consults on its "once-in-a-generation" targeted support proposals

There is no denying that the advice gap is stark.  Just 9% of adults received financial advice about their pensions or investments in the previous 12 months, according to the FCA’s latest Financial Lives survey. There are also about seven million adults in the UK with £10,000 or more in cash savings who the FCA say may be missing out on the benefits of investing throughout their lives. In this cohort, amongst those who did not receive financial advice, 24% said they don’t invest because they don’t know enough about it, 12% because they feel overwhelmed by the number of options available, and 8% report wanting more support before they feel able invest. 

It is this gap that the FCA and Treasury’s joint Advice Guidance Boundary review is seeking to plug. Targeted support forms a key part of the FCA’s review, and its latest consultation (CP 25/17), takes forward and fleshes out, for pensions and investments, a number of the targeted support proposals set out in CP 24/27 (which focused solely on pensions – see our earlier post here). 

In terms of scope, the FCA's proposals are directed towards suggestions relating to investments and pensions only. Support relating to other types of products, such as mortgages and pure protection insurance, is beyond the scope of its proposals. 

Key details:  Targeted support

Whilst the current proposal is that targeted support will fall within the definition of a “personal recommendation” under the current regulatory framework, the FCA want this to go beyond the types of information firms can currently offer when providing guidance to consumers.  Given the overlapping nature of this new regime with the FCA’s current rules on offering advice and guidance, it is crucial that targeted support provision is regulated differently to existing forms of advice (in the broadest sense of the word). The FCA intends to establish a bespoke set of conduct standards, and a dedicated authorisation gateway.  The first step here will be Treasury's amendments to the RAO 2001 to include a new specified activity of “targeted support” (and a consultation on these is due later this month).   

Central to the FCA’s proposals is a desire for firms to create targeted support offerings that deliver better financial outcomes for customers than if targeted support had not been offered. The Consumer Duty term “good outcomes” is being avoided because the FCA is keen to avoid any impression that firms must deliver targeted support to fulfil their Duty obligations.  That does not avoid the fact that the use of ‘outcomes’ in a different, but overlapping, context could easily cause firms and customers significant confusion. In fact, the FCA’s explanation of the point in the CP is one of the most opaque elements of its proposals. 

The FCA expects firms (acting in good faith as required by the Duty) to consider providing ready-made suggestions to help consumers avoid foreseeable harm or meet their financial objectives.  In practice this will require firms to:

1. Pre-define “situations” in which they can provide targeted support when designing their offering. The FCA has avoided prescribing situations in which firms can provide targeted support, however, firms will not be able to use targeted support models to provide recommendations on giving up safeguarded pension benefits.
2.  Pre-define consumer ‘segments’, that is, groups of consumers in a common situation and, where relevant, sharing common characteristics with sufficient granularity that it should only be possible to align a consumer with one consumer segment within each pre-defined situation. 
3. Pre-define a ready-made ‘suggestion’ for each customer ‘segment’ within a ‘situation’. 

When designing consumer segments, firms must also identify ‘excluding’ characteristics which would prevent a consumer from being aligned with the segment (i.e. characteristics that would likely render a ready-made suggestion ineffective, inappropriate or unduly risky, and thereby unsuitable).

In order to ensure that firms deliver products and services that meet the needs of their target market and that provide fair value, a robust product governance framework is needed. The FCA intends to use existing requirements in PROD and the Consumer Duty as well as additional specific requirements around monitoring of outcomes for customers accessing targeted support. Firms must also conduct a regular review of their targeted support services, although the FCA has rowed back from mandating annual reviews, offering flexibility for firms to determine appropriate review intervals.

Communications 

The FCA is not proposing to prescribe specific touch points, language, or formats for communications during the targeted support journey, on the basis that the Consumer Duty sets overarching standards for firms here. There will, however, be specific requirements to communicate to consumer;

1. the nature of targeted support including that it is based on limited information and therefore that it is not individualised advice;
2. the characteristics of the segment to which a consumer has been allocated; and 
3. where relevant, specific requirements around ready-made suggestions. 

Firms will need to test that consumers understand precisely what they are (and are not) receiving when accessing a targeted support offering, both to ensure they deliver good outcomes and because this could ultimately be the trigger for future complaints. This FCA has annexed to the CP the results of its own consumer testing including behavioural insights, in the hope that this will assist firms looking to calibrate their communications. 

The FCA also recognises that firms will want clarity around how the FOS and FCA will assess complaints related to targeted support. Misalignment between the two could act as a significant barrier to firms wishing to offer targeted support. As highlighted in a number of responses to the FCA’s recent Call for Input on Modernising Redress, the FOS’s ‘fair and reasonableness’ jurisdiction allows it to draw its own, potentially divergent views on the conduct required to comply with FCA rules and guidance. Such uncertainty would be a significant disincentive to firms considering offering targeted support.

As an overarching principle however, if the FCA conclude that a firm has operated within the regime, and there is no evidence that a consumer has been misled, then the FOS will not expect the firm to have conducted the same fact finding or suitability processes required when giving a personal recommendation under COBS 9/9A. Where the facts suggest that the firm has exceeded the scope of targeted support and in fact provided another form of advice, the FOS may consider the complaint in light of the broader regulations that apply. The FCA and the FOS have committed to working together to set common expectations under the new regime.

Charging

As proposed last year, the FCA proposes to allow firms to offer targeted support services for free, although it would not prevent firms from charging for this service if they prefer. Firms may use cross-subsidisation to recuperate costs, provided this is compliant with the price and value outcome under the Consumer Duty. Understanding the impact of cross subsidies on assessments of value and articulating the overall value proposition of services funded in this way remains challenging – firms may find this element of the proposals quite difficult in practice.

Simplified advice

The latest CP also sets out the FCA’s next steps for one of its other proposals for bridging the advice gap – simplified advice –where the FCA plans to consult at a later date on amendments to COBS 9/9A to create a clearer distinction between simplified and more holistic advice .  Given how the targeted support proposals have developed, there is currently no plan to progress proposals for a bespoke simplified advice regime as was originally discussed in FCA DP 23/5. 

Next steps and timing

The FCA’s latest consultation is open for 8 weeks (until 29 August 2025), and subject to the extent of feedback received, the plan is for a policy statement to be issued before the end of this year.  The ultimate goal is to work with firms to enable them to operationalise targeted support quickly.  To enable the implementation of targeted support, the government has announced that it will be publishing a policy note setting out proposed changes to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (the note and draft statutory instrument will be published alongside the Chancellor’s Mansion House speech on 15 July). 

Find out more about our reflections on the proposals and points on which firms may want to respond to the consultation in our second post here.