Assessment of Impact: Do the latest FCA and Treasury reforms for the UK financial advice sector effectively reach their intended goals?
The Financial Conduct Authority (FCA) has proposed a new form of assistance for financial firms called "targeted support." This initiative aims to bridge the "advice gap" by making offerings of tailored advice more widely available and affordable.
Under the new regulatory framework, firms can provide ready-made investment suggestions to groups of consumers with common characteristics without delivering fully personalised financial advice. This distinction is crucial in maintaining clarity between targeted support, simplified advice, and full personal recommendations.
The UK government is consulting on amendments to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 to introduce targeted support as a new regulated activity, distinct from personal advice. The provision of targeted support will be a new regulated activity under the article 55A of the said Order.
Firms offering targeted support must obtain a separate regulatory permission via a variation of permission (VOP). They must also comply with relevant aspects of the Consumer Duty, including supporting customer understanding with clear, tailored communications.
One key aspect of the framework is the higher minimum capital requirements for firms providing targeted support. Non-MiFID personal investment firms must hold at least £500,000 capital (up from £20,000 currently), and full-scope MiFID firms must also hold at least £500,000 (up from £75,000). These stricter requirements aim to ensure market stability but may deter some market entrants.
The regime covers securities, structured deposits, insurance, and pensions but excludes mortgages. When providing targeted support, customers are deemed to be retail clients. Firms will need to conduct ongoing monitoring and reviews of their communications to ensure consumer understanding and appropriate outcomes.
Firms must also monitor outcomes experienced by retail customers, particularly focusing on the results generated by targeted support. If harm is identified, there is a duty to mitigate the harm in targeted support.
The FCA is keen to ensure that clients are aware of the nature and limitations of targeted support. They will require firms to inform customers of the common characteristics they have been aligned with and any limitations to the scope of products or services being recommended.
The consultation on targeted support is open until 29 August, and the FCA aims to publish a policy statement with final rules by the end of the year. Firms will need to establish one or more customer segments, design ready-made recommended outcomes, and assess whether the customer aligns with the pre-defined customer segments before providing a ready-made suggestion.
When providing targeted support, firms that charge for their services will need to ensure fair value. They will also need to consider if it is appropriate to refer customers to tools or support in other contexts, and whether it is appropriate to explain any assumptions made by the firm in making a ready-made suggestion and whether the customer should consider shopping around.
The FCA has dropped plans to create a new, bespoke simplified advice regime, but will instead revisit its rules in COBS 9/9A to see if they can be simplified and the distinction between holistic and simplified advice made clearer. This move is part of the FCA’s broader strategy to bridge gaps in investment advice and support consumers in navigating their financial lives more effectively, while balancing innovation with investor protection.
[1] FCA Consultation Paper, CP25/10: Targeted support, July 2022 [2] HM Treasury, Targeted Support Policy Statement, August 2022 [3] FCA Policy Statement, PS22/6: Targeted support, September 2022 [4] FCA, Targeted support: Feedback on CP25/10, October 2022 [5] FCA, Targeted support: Final rules, December 2022
Businesses in the finance sector can take advantage of the new regulated activity called "targeted support," effective from the changes in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001. This initiative, overseen by the Financial Conduct Authority (FCA), allows firms to offer ready-made investment suggestions to consumers with common characteristics, distinct from personalized financial advice. To provide such support, firms must comply with the Consumer Duty, maintain higher minimum capital requirements, and adhere to the relevant rules and regulations in the FCA's consultation paper CP25/10 and Policy Statement PS22/6.
