The Treasury and Financial Conduct Authority have laid out proposals to deliver a simplified advice regime, with more targeted support for consumers looking to make financial decisions around retirement, as part of an industry-wide consultation on how to close the advice gap.
This policy paper, on the Advice Guidance Boundary Review is published today, and sets out three initial proposals to address current problems in the market, which has resulted in high-cost individual advice being out of the reach of most consumers, despite the fact many now face complex retirement decisions thanks to pension freedoms and the switch from DB to DC pensions.
The FCA says these high-level proposals “reflect early thinking” at this stage and “these proposals will evolve based on stakeholder feedback and further engagement”.
These three proposals are:
- Targeted supported — this proposes a new regulatory framework enabling firms to broaden the support they can provide to consumers. The FCA has said this support could be offered without explicit upfront fees or charges, enabling firms to suggest products or a course of action based on a target market the consumer has been identified as belonging to, rather than fully individualised support. The regulator says it sees this as a a key new proposal to help close the advice gap and boost access to financial support across the UK.
- Simplified advice — this FCA has previously set out proposals for a simplified advice regime aimed at providing one-off investment advice to consumers with less complex needs. It says feedback to this consultation supported a core investment advice regime, but with limited support for the specific proposals, with firms suggesting there were commercial barriers to implementing this. As a result the FCA says it wants to explore a simplified form of advice that enables firms to support consumers with simpler needs and smaller sums to invest, and to do so in a commercially viable way. It says this simplified advice different from targeted support , with proposal aimed at enabling firms to better support consumers who want to receive a personal recommendation when making a financial decision but for whom the more comprehensive support provided by holistic advice may not be cost-effective.
- Further clarification of the boundary — this would provide authorised firms with greater certainty that they can give more support to consumers without providing a personal recommendation under the existing framework.
The FCA said it is not favouring any particular recommendation at present but seeking feedback on all three from the industry and interested stakeholders.
FCA executive director, markets and international Sarah Pritchard says: “We want to see a system that enables consumers to receive the help that they want, at the time they need it, at a cost that is affordable, so that they can make informed decisions. We want to see a continuum of help, guidance and advice being offered to support consumers, without the current cliff edge inherent in the current regulatory framework.”
She adds: “To succeed in closing the advice gap, industry needs to play its part. We expect firms to actively engage with this review and consider how they can better support their customers. This means being bolder and embracing the opportunities that data and technology bring to offer more accessible, affordable and innovative services to consumers.”
In his foreword to the policy paper economic secretary to the Treasury Bim Afolami says: “Pension freedoms have given individuals the flexibility to manage their financial futures in a way that works best for their personal circumstances and goals.
“However, we know that a majority of people are not accessing traditional channels of support such as regulated financial advice to help them make financial decisions. This means that the provision of financial advice is often out of reach for all but the already wealthy. I want to change this and ensure that a much broader range of consumers are empowered to proactively manage their finances.”
Responses to this policy paper need to be submitted to the FCA by the end of February 2024.
Responding to the publication of this latest policy paper Royal London director of policy Jamie Jenkins says: “This is a step-change from the Regulator in trying to tackle the advice gap. For those who receive professional advice, the benefits are clear, but the journey to that point is built around a framework that is so risk averse that very few people are receiving any meaningful guidance along the way. This is a welcome intervention to attempt to change that.”
Wealth Wizards CEO Ben Hampton adds: “This feels different to previous attempts to solve this puzzle. The FCA and Treasury are breaking new ground with a Policy Paper, signalling a shift for quicker, more impactful feedback, rather than a traditional discussion paper route. The pace of change feels progressive, as an industry we all need to step up to accelerate better access to financial help.
“This is the start of new era of how people make financial decisions. We will need to digest the detail, however the ability to be more personalised and opinionated outside of regulated financial advice will reshape customer behaviour. The real winners are going to be those who can coherently connect the new and different types of support that will become available.”
Meanwhile PIMFA’s head of public affairs Simon Harrington adds: “We believe that the proposals put forward today will go some way to closing the UK’s support gap – ensuring that people are able to access targeted financial advice which is relevant to their needs.
“It is vital that firms feel empowered to provide support without the concern of being seen to provide financial advice and we are hopeful that this will manifest itself in a manner that consumers derive value and meaning from being told what people like them would do in similar circumstances.
“In order for these proposals to be successful, it is vital that they are both commercially viable for firms as well as ensuring that consumers are guided towards good outcomes for them, rather than the firm guiding them.”