FCA Announces Major Advice Overhaul - Understanding the Impacts on Consumers
The Financial Conduct Authority (FCA) has announced a series of reforms aimed at addressing the significant financial advice gap in the UK. Known as the targeted support reform, these changes will allow regulated firms to offer a new type of service called targeted support. This service will enable firms to provide financial suggestions to groups of consumers with common characteristics, such as those drawing down their pensions unsustainably, sitting on large amounts of cash, or not saving enough for retirement.
According to the FCA, fewer than one in ten adults currently receive financial advice about their pensions or investments annually. The targeted support reform is designed to offer a continuum of support—from guidance and simplified advice to targeted support and full advice—giving consumers help tailored to their needs throughout different life stages.
The reforms also include plans to create a bespoke regulatory framework, with new conduct standards and a dedicated authorisation gateway specific to targeted support. This will differentiate it from existing personal recommendation rules. The government is set to consult on amendments to the Financial Services and Markets Act to establish targeted support as a formally recognized regulated activity.
The FCA's latest Financial Lives survey revealed that only 9% of adults received financial advice about their pensions or investments in the previous 12 months. The reforms are intended to help millions of savers and investors manage their money without paying for regulated advice.
Under targeted support, firms could suggest alternative pension contribution rates for consumers who may be under-saving for retirement. They could also suggest particular funds offering better value instead of just informing consumers about lower-charged alternatives.
The FCA is concerned that while people may have financial products, they don't necessarily engage with them in the best way. Tom Selby, director of public policy at AJ Bell, stresses the importance of ensuring people can access the help and support they need. Steve Levin of Quilter emphasizes the importance of distinguishing between targeted support and holistic financial advice.
Sarah Pritchard, deputy chief executive of the FCA, stated that the reforms aim to help consumers navigate their financial lives and plan for the long term. The once-in-a-generation reforms, according to Pritchard, will help people navigate their financial lives and give them greater confidence to invest, benefiting both consumers and firms alike.
The change could allow pension firms to suggest an alternative drawdown rate if there are concerns about unsustainable pension withdrawals. The FCA's consultation aims to design a consistent method for targeted support. The reforms are expected to close the financial advice gap and assist people in making better decisions, such as when they retire and make pension withdrawals.
These reforms represent a significant step forward in making financial advice more accessible and affordable for millions of people in the UK. By offering regulated support to groups of consumers rather than individuals, the FCA hopes to lower the threshold for firms to provide help, ultimately helping people plan better for their financial futures.
- The FCA's reforms, designed to close the financial advice gap, will allow regulated firms to offer targeted support, suggesting alternative pension contribution rates for consumers who may be under-saving for retirement, and offering help tailored to their needs throughout different life stages.
- The reforms are expected to benefit both consumers and firms alike, giving people greater confidence to invest and plan for their long-term personal-finance goals, while also helping them make better decisions, such as when they retire and make pension withdrawals.
- The targeted support reform includes plans to create a bespoke regulatory framework, with new conduct standards and a dedicated authorization gateway specific to targeted support, differentiating it from existing personal recommendation rules, and making financial advice more accessible and affordable for millions of people in the UK.
