FCA discussion paper explores the advice/guidance middle ground
The Financial Conduct Authority (FCA) today published a policy paper which explores how the pensions industry could achieve a middle ground between expensive advice and impersonal guidance.
The paper reads: “…we need to create a system that ensures consumers get the help they want, at a time they need it and at a cost that is affordable.”
Many consumers are not getting the retirement support they need. Only eight percent of UK consumers received full financial advice in 2022, according to the FCA’s Financial Lives survey.
The FCA’s paper said: “We know that many firms are not providing this support to consumers sometimes for fear of crossing the advice boundary. As a result, many consumers are not getting the help or guidance that they need.”
The proposals
The discussion paper lists three key proposals:
Further clarify the boundary between guidance and advice
By clarifying the guidance/advice boundary, the FCA hopes to empower firms with greater certainty that they can give more support to consumers.
The paper reads: “Building on the August 2023 boundary clarification document, we intend to explore whether further guidance or simplifying existing guidance, would help firms to provide consumers with greater levels of support by giving them more confidence to operate closer to the boundary. In appropriate cases we could also consider rules mandating specific actions.”
Targeted support
The FCA proposes rethinking the way financial support is delivered to consumers. It wants to enable firms to use limited information to suggest products or courses of action, suggesting options on the basis that ‘people like you’ took this course of action.
Simplified advice
The FCA wants to explore a simplified form of advice which enables pension firms to support consumers with smaller pot sizes and simpler needs, in a commercially viable way.
The industry responds
Broadly, the industry welcomed the FCA’s new paper. Steven Cameron, pensions director at Aegon, said: ““We welcome the latest Discussion Paper from HM Treasury and the FCA on how to tackle the highly persistent but increasingly important advice and support gap.
“While regulated advice is highly valuable, it’s widely recognised that not everyone is able or willing to pay for it, meaning there’s an urgent need to have alternative routes to support with financial decisions. We welcome the commitment to ensuring ‘existing advice services continue to thrive’ and the aim of having a ‘continuum of help, guidance and advice’ rather than the current ‘cliff edge’.”
Andy Curran, CEO of Standard Life, part of Phoenix Group, added: “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.”
Joe Dabrowski, deputy director for policy at the Pensions and Lifetime Savings Association (PLSA) said: “It is especially welcoming to see pension scheme trustees specifically considered in this regulatory reassessment, as the more clarity they are afforded with the support they can offer their members, the more tailored and appropriate guidance will be.
“As the Review recognises, savers often struggle to make complex financial choices. The role of trustees and employers, who can support and help them navigate these choices in their best interests, throughout their working life and at retirement, is essential.”
As ever though, the devil will be in the detail. Steven Cameron said: “Further clarifying the boundary between advice and guidance is unlikely to offer a ‘breakthrough’ solution. The proposal 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 actual change, this is too important an area to rush. We do hope that despite a General Election looming, progress can be made, with cross-party support.”
What next?
The FCA is keen to hear feedback from the industry on its proposals, which can be found here. The deadline for comments is the 28 February 2024.
