Millions of UK workers could gain access to better financial guidance under new proposals from the Financial Conduct Authority (FCA), which would allow firms to offer a new form of help known as “targeted support”.
The proposals aim to close the persistent ‘advice gap’ and help people make better decisions around pensions, savings and investments.
The new category of “targeted support” would enable firms to suggest options to groups of consumers with common characteristics. For example, people that are not saving enough for retirement or holding excessive cash in current accounts. The approach is designed to complement simplified and full advice services, which people usually have to pay for, while offering an alternative for those who have historically gone without support.
The FCA said that giving people a wider choice of guidance, targeted support, simplified advice and full financial advice should help reduce the ‘advice gap’. It added that these proposals support the FCA’s ambition to ensure consumers have access to the help and guidance that they need, at a cost they can afford, when they need it, to make informed decisions about their financial lives.
FCA data shows that only 9 percent of adults received investment or pension advice in the last year. Of those that did not access financial advice, but who have more than £10,000 in cash savings, nearly a quarter said they avoid investing due to lack of knowledge, and 12 percent said they feel overwhelmed by available options. Almost one in ten said they would need more support before they would invest.
Sarah Pritchard, deputy CEO of the FCA, said: “We want to help consumers navigate their financial lives and plan for the long term. Some of the most difficult financial decisions we face are how to save, invest and prepare for a comfortable retirement.
“These once-in-a-generation reforms will help people navigate their financial lives and give them greater confidence to invest. This is a win-win for consumers and firms alike.”
Chancellor Rachel Reeves welcomed the move, calling it “a real difference to help working people make better long-term financial decisions, ultimately putting more money in their pockets as part of our Plan for Change.”
The FCA said it wants to see “a thriving and trusted market for full financial advice, simplified advice, targeted support and guidance”. Alongside the proposals for targeted support, the FCA has set out plans to reform the framework for simplified advice.
HR and reward professionals need to consider how these reforms might intersect with workplace financial wellbeing initiatives, particularly as employee demand for personalised support around pensions and investments continues to rise. With over half of existing investors expressing a desire for more help managing their portfolios, the FCA’s plans may also complement employer-led guidance programmes.
The consultation on the proposed changes is open for eight weeks. A finalised framework is expected to shape financial advice policy for the next two to three decades.
In response to the proposals, Chira Barua, CEO of Scottish Widows and CEO of insurance, pensions and investment at Lloyds Banking Group, said: “More than 90 percent of consumers in the UK today cannot access regulated advice and get the help they need to make informed decisions about their futures. As the UK’s biggest digital bank and the only integrated bank and insurer, Lloyds is passionate about helping our 28 million customers bridge the advice gap. The FCA’s work to refine the advice rules is a material stepping stone in building a more inclusive financial landscape in the UK.”
Doug Brown, CEO of insurance, wealth and retirement at Aviva, said: “We welcome the introduction of targeted support rules, as they hold the potential to transform how we support consumers with their pensions and investments. Additionally, these rules could stimulate UK growth by enhancing consumer access to financial products, encouraging innovation, and reducing regulatory barriers for firms.
“Aviva and Age UK research published this year found less than half (48 percent) of mid-retirees aged 65-75 who do not pay for financial advice are confident they are on track to make their pension savings last for life, and almost two thirds (65 percent) do not believe there is enough support for people managing their financial needs as they age.
“Professional independent financial advice has a vital role to play in helping consumers make good financial decisions, but most don’t get that advice. The introduction of targeted support and simplified advice could help bridge that gap, making advice more accessible and affordable.
“It’s great to see the FCA and the Treasury working together with the Financial Ombudsman Service (FOS) to deliver these important reforms and we look forward to supporting them.”
David Lane, chief executive of TPT Retirement Solutions, called the proposals a “good step towards closing the financial advice gap”.
“It will provide much-needed counsel for those groups of people who either cannot afford full financial advice, or simply do not need it,” he said.
“TPT research last year found that 75 percent of DC pension savers, age 45 plus, did not have a clear plan for how to take their money, or even know they had to make a choice at retirement. With this in mind, the need for targeted support cannot be understated.
“The industry has already gone some way to addressing this problem. At TPT, we believe in solutions that are easy to use, low cost, and remove the need for members to have to make complex advised decisions.
“This is why we have launched an industry-first decumulation product designed to simplify retirement income planning for savers. It provides a simple alternative for members who do not want to make investment decisions, by enabling members to convert their pension pots into a sustainable, inflation-linked income for life.”
