The Financial Conduct Authority is again looking for ways to fill the so-called advice gap, as it has found many consumers are not obtaining advice in circumstances where it believes it would be in their best interests to do so.
Generally, the more money a consumer has to invest the more likely they are to obtain regulated advice.
But this leaves a large proportion of consumers simply not obtaining advice, and with those reaching retirement more likely to be relying on pension pots linked to investment returns, the FCA's focus is on trying to encourage the advice industry to fill this advice gap.
In its recently-published policy paper the FCA looked again at advice that is not holistic to fill that advice gap – but will FCA-regulated firms embrace the proposals or is there simply too much risk when balanced against any commercial gain?
The FCA's proposal
In December 2023 the FCA released a policy paper – "Advice Guidance Boundary Review" – which provided its proposals for closing the advice gap.
The paper recognises that there are many instances where, despite consumers not wanting to obtain holistic financial advice, they would be open to obtaining other forms of non-advised or simplified support.
It is here that the FCA considers extra value can be delivered to consumers, in effect creating tiers of advice for retail investments and pensions – general insurance, mortgages, final salary pension transfer advice and debt advice fall outside the scope of the paper.
Broadly, the current advice framework provides for either holistic advice (ie consideration of a consumer's overall financial circumstances and objectives with recommendations personal to that customer), and information and guidance (ie generic and factual information without a personal recommendation.
In order to fill the gap between the two and "smooth the cliff edge between holistic advice and information and guidance to create a continuum of support", the FCA proposes three measures.
1. Further clarifying the advice/guidance boundary
This first proposal does not propose anything new, instead the focus is on providing further clarification of the existing boundary between advice and information/guidance.
The FCA has notably already provided some clarification in August 2023 with a document over what constitutes advice.
The intention of this proposal is for firms to do more within the existing framework.
2. Targeted support
The FCA sees this as potentially a key proposal and describes targeted support as "sitting between both information or guidance and simplified or holistic advice".
The proposal includes a suggestion that firms could:
- use limited information about a customer and their circumstances to provide support to consumers where the action would be appropriate to a person in similar circumstances – a 'people like you' proposal; or
- offer targeted support without explicit charges, which could instead be wrapped up in transparent upfront fees.
Firms would be able to use personal information they hold on consumers to make suggestions to a customer that they may make to other customers in similar circumstances.
Given that the proposal operates by identifying whether a customer falls within a target market it is more likely that this proposal will attract larger entities such as banks, life insurers and platforms, rather than financial advice firms, albeit there may be investment pathways that can be applied more widely to mainstream investments and pensions.
