In an effort to bridge the advice gap — the gulf between high-end, bespoke financial advice, and basic, cheap guidance — the U.K.’s Financial Conduct Authority (FCA) is proposing a new approach to mid-market advice.
The FCA published a consultation today on a new model it calls “targeted support,” envisioning a form of generic advice that would help investors make more informed decisions, without fully tailoring that advice to the individual.
“Targeted support would allow firms to provide support to consumers in different scenarios, for example, if they identify someone is drawing down on their pension unsustainably, or where a consumer is facing uncertainty about how to take a retirement income,” it said, adding that it would enable firms to provide overall advice to specific groups that share certain characteristics.
Firms that provide “targeted support” advice would be subject to “proportionate” conduct standards around the provision of that advice, the paper noted.
To start, the regulator is seeking to develop the new model for pension investors, but it aims to ultimately extend this sort of approach to retail investing generally.
“The FCA will follow with further proposals on introducing concepts of targeted support and simplified advice for other retail investments next year,” it said.
In the meantime, the FCA noted that it’s focusing on pension investors, as its research found that 75% of the 16 million investors with defined contribution pensions say they don’t have a plan for drawing on that pension in retirement.
And, it found that “the vast majority” of investors aren’t equipped to make complex decisions about their pensions, given that only 9% say they’ve received comprehensive financial advice in the past year.
“Most people still lack the support needed to make critical choices about their pensions,” it said.
To address that shortage of advice, the targeted support model, “would see people receive suggestions developed for a group of similar consumers rather than based on the individual’s detailed circumstances, as would be the case with holistic advice,” the regulator said. “That means suggestions that are not optimized for the individual; a trade-off we think is required if pension support is going to be scalable.”
The regulator’s proposal for the targeted support model in the pension sector is now out for comment until Feb. 13. In the meantime, the FCA said that it’s also developing related “targeted support” proposals for retail investments generally.
“We plan 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,” it said.
In a separate consultation, the FCA is also seeking feedback on whether other reforms are needed to better support investors, such as changes to rules on the use of digital tools, self-directed savings plans or consolidating pensions.
“We want people to have access to the help, guidance and advice that they need, at a cost they can afford, when they need it, so that they can make informed decisions. So, we are reviewing the boundary between guidance and advice across investments,” said Sarah Pritchard, executive director of consumers, competition and international, at the FCA, in a release.
“We know people find pensions particularly difficult to understand, so we are deliberately starting with this to help consumers with their pension decisions,” she said.
“If we get this right, consumers will be better supported in making financial decisions. This will potentially lead to more people investing, which will help provide capital necessary to stimulate economic growth,” she added.