Advice/Guidance Boundary Review: Reflections on the FCA's targeted support proposals

FCA and Treasury’s joint Advice Guidance Boundary review is seeking to plug the UK's "advice gap" for retail investors. 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 this second post on the consultation, we set out our reflections on the proposals and outline some areas on which firms may wish to respond.   You can find our first post here

Reflections

Whilst the FCA has clearly considered the feedback on its initial proposals, published last year, a number of unanswered questions remain. Treasury will need to confirm whether appointed representatives should be able to provide targeted support with the result that, initially at least, we would expect targeted support to only be undertaken by directly authorised firms.  There are also questions around whether proactive targeted support communications (for example about ISA allowances, pension contribution rates or fund switching) containing specific, actionable suggestions, could constitute “direct marketing”. Despite the FCA’s November 2024 joint statement (with the ICO and the TPR) on consumer communications, many firms still consider the existing direct marketing rules to be a significant barrier to firms’ ability to provide effective targeted support. Further guidance (from the FCA, ICO and others), or a rule change (a point for Treasury) may be required to give firms the comfort they need.

Still more complicated are the operational challenges that remain. As well as the overlapping (and confusing) references to differing types of ‘outcomes’ as a measure of success, there are real risks for firms around the management of conflicts of interest, particularly where a firm only offers its own products as ‘solutions’ to customers accessing its targeted support. The FCA is proposing a break, of around two weeks, between a firm offering one of its own products as ready-made targeted support ‘solution’ and selling that product to the client in question, but this only appears to apply in the context of annuities. Elsewhere, firms simply need to communicate to customers that they have only considered their own products when developing their ‘solutions’. All firms will need to train staff to effectively operate within robust conflicts of interest policies (which may themselves need updating) it they are to avoid breaching the FCA’s existing rules here. 

Constructing customer segments with sufficient granularity to be meaningful, but not so specific that they become too individualised to operate is a further challenge. There are particular difficulties around offering target support to vulnerable customers. The FCA accepts that the type of ‘excluding characteristics’ that mean an individual is not aligned with a particular customer segment could easily include protected characteristics or characteristics of vulnerability. This means that vulnerable customers have a greater likelihood of being unable to receive a ready-made suggestion. All firms offering services (including targeted support) to retail customers are, however, bound to deliver good (consumer duty) outcomes for vulnerable customers within their target market. The FCA suggests that firms address this during the design stage by considering whether they can pre-define a different consumer segment to capture consumers with the particular characteristic.  If this is not possible, they suggest identifying ways to exit consumers from the targeted support journey and leading them to other forms of support.

Finally, plugging the advice gap will – perhaps inevitably – leave firms navigating even more boundaries across which they must not trespass. Guidance must not stray into targeted support and targeted support must not become advice. The lines between each are arguably still not especially bright. The FCA must work with firms here to resolve and prevent uncertainties, and therefore perception of risk, arising. It will be vital that the FCA, FOS and firms are able to agree and uphold an agreed understanding of what targeted support is and where the boundaries are, so that firms have the confidence to really embrace these changes.