- Millions of Brits stand to benefit from radical reforms enabling them to receive more useful ‘targeted support’ financial guidance
- The ‘once in a generation’ changes announced by the FCA are designed to improve the help people receive from financial services firms about their finances
- AJ Bell was one of a number of firms that engaged in a ‘Policy Sprint’ earlier this year to test a cash to investing consumer journey
- The regulator is also pushing forward with plans to reform ‘simplified advice’ as it aims to tackle the UK’s burgeoning ‘advice gap’
Tom Selby, director of public policy at AJ Bell, comments:
“Ensuring people can access the help and support they need, either through regulated advice or guidance, is critical to building financial resilience in the UK. The existing regulatory framework makes it difficult for firms to offer anything beyond relatively basic information to non-advised customers without risking straying over the boundary from guidance to advice.
“This means millions of people who don’t take regulated advice are essentially left to make often complex retirement decisions on an island, without receiving the help they require. The data around this is stark, with three-quarters of over-45s having no clear plan about how to take money from their retirement pot and only 1-in-10 people receiving regulated advice. The temptation to stick your head in the sand when it comes to pensions in particular – the so-called ‘Ostrich effect’ – risks leaving millions of Brits facing a disastrous income shortfall when they reach retirement.
“Regulated advice remains the gold standard but the proposal to create a new ‘targeted support’ regime allowing more personal help to be provided for free could be a gamechanger for consumers, potentially helping millions of savers make better-informed decisions about their finances. Full financial advice is an incredibly valuable service but isn’t an option for everyone. Research published this week from the Lang Cat shows that new clients typically approach a financial adviser with an investment portfolio of over £400,000 and the average advised investor is aged around 60.
“Clearly that leaves a significant advice gap and the regulator has identified millions of people with investible assets who are crying out for help making decisions, but many cannot afford advice or prefer to manage their own investments on a DIY basis.
“It is therefore vital those who do not receive advice still get some help to make sound financial choices. The FCA and Treasury deserve credit for tackling this difficult problem head-on and exploring solutions to both improve guidance and make advice more accessible.
“When it comes to reforming simplified advice, the big challenge will be creating a regime which genuinely allows advisers to provide a stripped-back service to clients at a lower cost. Part of the success of both targeted support and simplified advice will come down to the regulatory requirements, but part of this will also rest on the approach the Financial Ombudsman Service (FOS) takes. If both organisations are flexible and pragmatic, with a clear focus on delivering good outcomes for investors, these reforms should be a genuine game-changer.”
How firms could use targeted support
The FCA has outlined a number of examples where targeted support could be used, including:
- Consumers under-saving for retirement: Currently firms can warn a consumer that they may be under-saving for retirement. Under targeted support, a firm could suggest an alternative pension contribution rate
- Consumers who are investing in an expensive fund when a cheaper alternative is available: Currently firms can inform consumers that there are alternative products with lower charges. Under targeted support, a firm could suggest a particular fund which would offer better value.
- Consumers drawing down their pension unsustainably: Currently firms can warn a consumer that they may be drawing down their pension unsustainably. Under targeted support, a firm could suggest an alternative drawdown rate.
