The Financial Conduct Authority has given targeted support the green light, in a move it says will be “game-changing” for the way people make financial decisions.
Firms will be able to apply to offer targeted support from March next year, with the new regime expected to come into effect in April, the FCA said in a statement published on Thursday.
The new service will allow firms to make specific suggestions to consumers, enabling them to make more informed decisions about what to do with their money.
Sarah Pritchard, deputy chief executive of the FCA, said: “Targeted support will be game changing. It means millions of people can get extra help to make better financial decisions.
“We also hope it will build greater confidence to invest. While investing will not be right for everyone, we know people in the UK invest less compared to the EU or US. People in the UK could be missing out on the potential benefits of investing in the medium to long term.”
The regulator said over the next decade at least 18 million people could be offered help with their investments and pensions as a result of targeted support.
It stressed that the need for greater support is “stark”, with its latest data showing there are around seven million adults in the UK with £10,000 or more in cash savings who could be missing out on the benefits of investing. Less than one in 10 people receive regulated financial advice, with nearly a fifth turning to family, friends or social media for help making decisions.
Over half (54%) of those who have £10,000 in cash savings, but do not receive advice, say they have not thought about investing.
The watchdog said many consumers also find decision making on pensions difficult, with 75% of defined contribution pension holders aged 45 or over lacking a clear plan for how to take their money. Furthermore, only a fifth (22%) of this cohort say they have a good understanding of their pension access options.
What can consumers expect from targeted support?
Underpinned by the Consumer Duty, targeted support is intended to act as a flexible, futureproof framework, enabling firms to innovate and better support their customers.
Consumers will receive recommendations, but they will not be based on a full, in-depth individual assessment. Firms will need to make sure the recommendations are suitable and should only be offered when it puts consumers in a better position. It is a one-off service and does not involve ongoing suitability assessments.
The watchdog is already helping firms to prepare for the gateway opening in March through its pre-application support service. It said firms which come to the gateway “demonstrably ready, willing and organised” will be authorised swiftly after the go-live date in April.
The FCA is also consulting on ways to further modernise pension rules, including projections and non-advised defined contribution transfers to strengthen consumer protection as part of wider government and regulatory reforms.
Industry welcomes the announcement
The announcement was met with widespread support from industry experts.
Tom Selby, director of public policy at AJ Bell, said: “The FCA is bang on when it says targeted support has the potential to revolutionise the help millions of people receive about their finances.
“The status quo simply isn’t working, with the gold standard of regulated advice out of reach for the majority and generic guidance failing to give people sufficient help with what can often feel like an intimidating financial landscape. Targeted support will allow firms to help customers make better informed decisions about saving, investing and retiring.
“The FCA deserves significant credit for delivering a package of changes, in close consultation with the financial services industry, that have the potential to make a real difference to people’s financial lives.”
Cath Sermon, head of public engagement and campaigns at Standard Life’s Centre for the Future of Retirement, said: “It is a positive step which will help ensure that savers don’t feel overwhelmed when making decisions around their pensions.
“This is especially important as we found that even people with a good grasp of other financial areas in their lives, such as mortgages, often feel confused about pensions. This can lead people to feel anxious, overwhelmed, and worried about the risks of making uninformed decisions, but targeted support can help cut through these negative emotions.
“Now is the time for the industry to help shape a service that supports people with some of the most challenging and significant financial decisions they will ever make.”
Ben Hampton, CEO of Advice at Royal London, commented: “With the FCA’s final rules on targeted support published, the financial services industry is on the brink of a transformative shift. Its introduction promises to reshape how millions access financial help, particularly at critical life stages such as retirement.”
David Brooks, head of policy at Broadstone, also welcomed the news, noting that targeted support has the potential to close “one of the most persistent gaps” in the UK pensions and investment system that sees millions make long-term financial decisions with little or no advice.
“Empowering firms to give consumers clearer, more tailored nudges is a sensible and pragmatic step that should deliver better outcomes for more savers and investors. There is now a clear and concerted mission to extol the benefits of investment and its ability to deliver long-term financial security.”
However, Brooks said the key to success will be the execution of the initiative.
“Firms will need absolute clarity on the advice/guidance boundary to support complex decision making and to ensure that targeted support does not create new risks or uncertainty. Trustees of occupational schemes would be wise to keep abreast of targeted support developments as it is likely that it will apply to the communications and support that they deliver to members,” he added.
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