The Financial Conduct Authority has launched a consultation on a number of proposals designed to help close the advice gap.
On Friday, the city watchdog and the government said they were seeking views, as part of the joint Guidance Boundary Review, to help people make more informed investment and pensions decisions.
Among the proposals is a new form of simplified advice that will make it easier for firms to provide affordable personal recommendations to clients with more straightforward needs and smaller sums to invest.
The FCA said it was also seeking to clarify when firms can give consumers support without giving regulated financial advice and to allow firms to provide support tailored to groups of people in similar circumstances.
The FCA said the proposals were an “important step” in examining how innovation could expand the market to new forms of advice and support, driving competition to better serve consumers while maintaining consumer protections.
It follows the FCA’s Financial Lives Survey which found that only 8% of UK consumers received full financial advice in 2022.
Bim Afolami, economic secretary to the Treasury, called the gap between holistic financial advice that is unaffordable to many and guidance that is free to access but not personal to the consumer “simply too vast”.
“This so-called advice gap is excluding people with modest investments who are looking for support that doesn’t break the bank. This just isn’t good enough – we have long needed a middle ground that is affordable and accessible,” said Afolami. “The policy paper that the Government and the FCA have published will explore how we can achieve exactly that.”
Sarah Pritchard, executive director of markets and international at the FCA, added: “We want to open the door for more people to get the right advice or support to manage their money at the time they need it and at a cost they can afford. We’ve already helped firms test drive innovative solutions but we want to go further.
“This review will help us produce new rules to deliver this important step change for industry and consumers. It’s important we get this right and we welcome feedback on whether the proposals are right for consumers and for businesses.”
Following close engagement with stakeholders to shape these initial proposals, the FCA and government are inviting feedback on the proposals by 28 February 2024.
The proposals were widely welcomed by the investment and advice industry who were in agreement that too many people are expected to make significant financial decisions without the necessary level of personal expertise or support to guide them.
Simon Harrington, head of public affairs at PIMFA, said: “Clearly it would be preferable for everyone to have access to a fully qualified financial adviser but we are aware that this is both unrealistic and also uneconomical for millions of people.
“With that in mind, 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.”
However, Harrington said in order for the proposals to be successful, they must be both commercially viable for firms as well as ensuring that consumers are guided towards good outcomes for them, rather than the firm guiding them.
Ben Hampton, CEO of Wealth Wizard, said the regulator’s decision to publish a policy paper outlining its proposals rather than a traditional discussion paper signals a shift for “quicker, more impactful” feedback.
“This feels different to previous attempts to solve this puzzle. 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 a 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,” said Hampton.
However, industry commentators said the FCA must give careful consideration on how the measures are implemented.
James Carter, head of platform policy at Fidelity International, called for the proposals to focus on accessibility and avoid measures that might inadvertently deter people from saving for their long-term futures.
Carter explained: “As the review notes, measures support positive risk-taking, helping consumers to understand and manage risk, rather than eliminating it completely. We strongly agree and believe this will deliver better outcomes for consumers, better growth for the UK and help to counter a shift towards risk aversion.”
Steven Cameron, pensions director at Aegon, commented: “We see particular opportunities to better support members of workplace pensions as they build up funds and prepare for retirement, typically without the benefit of individual advice.
“The three proposals need careful consideration. Further clarifying the boundary between advice and guidance is unlikely to offer a breakthrough solution. The proposals around targeted support may offer up opportunities to offer suggestions based on groups of customers with similar characteristics. The new proposals around simplified advice will need to be tested for commercial viability.
“While reverting back to a discussion paper with high level proposals does slow the likely pace of change, this is too important an area to rush.”
Alistair Black, head of savings policy at abrdn, added: “We are pleased to see the government mention the need for the simplified advice regime to avoid having to take into account consumers’ wider financial circumstances. If effective, this will maximise the chance of advice firms keeping costs for their clients down and growing capacity which benefits all.
“Ultimately the long-term goal needs to focus on a commercially viable simplified advice regime to help the masses in retirement. This is where the greatest need is. It doesn’t look like these proposals address that but they feel like a step in the right direction.”
