The Financial Conduct Authority (FCA) and Government have set out proposals which would provide greater access to advice or support for financial decisions.
The FCA and Government asked for stakeholder views, as part of their joint Advice Guidance Boundary Review, on three proposals to help people make more informed investment and pensions decisions.
The proposals include: further clarifying when firms can give consumers support without giving regulated financial advice; a new approach allowing firms to provide support tailored to groups of people in similar circumstances; a new form of simplified advice that makes it easier for firms to provide affordable personal recommendations to clients with more straightforward needs and smaller sums to invest.
The FCA’s Financial Lives survey found that only 8% of consumers received full financial advice in 2022.
Following engagement with stakeholders to shape the proposals, the FCA and Government will work together, alongside industry and consumer groups, to open up the market to a wider range of advice and support.
Bim Afolami, economic secretary to the Treasury, said: “The gap between holistic financial advice that is unaffordable for many, and guidance that is free to access but not personal to the consumer, is 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.
“The policy paper that the Government and the FCA have published today will explore how we can achieve exactly that.”
Sarah Pritchard, executive director of markets and international at the FCA, said: “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.”
Jenny Davidson, commercial proposition director at Quilter, said: “Regulators have been grappling with the advice gap – which is really a ‘help gap’ – since the Retail Distribution Review largely removed mass market bank advice. Today’s proposals aim to address this.”
She added: “The introduction of the Consumer Duty means financial services firms need to think about ways that they can get closer to the advice/guidance boundary where they can demonstrate it would help to avoid foreseeable harm.
“But many firms are still nervous about the perception that FOS interpretation can diverge from regulatory intention.
“It needs a concerted effort between industry and regulators to really drive change and give firms reassurance through clear advice/guidance boundaries and regulatory frameworks set up specifically for lighter forms of advice or enhanced forms of guidance.
“There is space for more sensible product guidance that is not based on personal information but utilises data on how the majority of people use certain financial products.
“The FCA’s commitment to explore the idea of ‘people like you’ nudges for non-advised savers is a good idea that could be critical to helping people avoid the kinds of choices that could be catastrophic for their later life finances.
“However, forms of ‘personalised guidance’, which has been previously suggested but are not in the FCA’s paper, would likely be a step too far and risk consumers misunderstanding what they are receiving, and a lack of clarity as to who is responsible for the decision.
“At the same time, the financial advice and wealth management sector needs to work with the regulator to really shape what an effective and commercially viable model of simplified advice looks like so that more people see investing for their future as a viable option.
“The regulator is right to exclude decumulation products, which involve the kinds of decision requiring full advice.
“A change in definition away from the rigid interpretation of the term ‘personal recommendation’ under MIFID is also essential and it’s reassuring to see the FCA raises this point.
“While we recognise the importance of a defined boundary between advice and guidance, this interpretation has resulted in a difficulty in the provision of focused help in the face of clearly harmful client decisions, potentially limiting the scope of aid firms can offer customers.
“In the cases where a customer strays far from the norm, a provider should be able to suggest they make sure they are aware of the ramifications of their actions.
“This could help prevent foreseeable harm – a central tenet of the Consumer Duty.
“While we firmly stand behind the existing distinction between advice and guidance, we welcome a broader scope to better meet the escalating demand for accurate and educational help for consumers.
“We want to work to optimise the use of product guidance and advice, but without blurring the crucial distinction between the two.”
Andy Curran, CEO of Standard Life, part of Phoenix Group, said: “For far too long we have had both a financial guidance and advice gap, with a majority of people making critical financial decisions with limited support.
“While financial advisers provide a very valuable service, the costs involved mean it is inaccessible to many and less than 10% of those approaching retirement receive advice.
“Even when free through Pension Wise, just 14 % of people taking their private pension for the first time currently access guidance to help them make their income choices.
“Most people don’t understand the difference between advice and guidance, and we see across the Group that customers are frustrated when their provider can’t help them in a meaningful way.
“The direction outlined today is a step in the right direction with a move to provide further clarity around the advice/guidance boundary and also steps that pave the way for providers to be able to offer more personalised information to groups of customers facing similar challenges.”
