Millions of savers and investors could get help managing their money without having to pay for regulated advice under new Financial Conduct Authority (FCA) reforms.
The changes are part of attempts by the City watchdog to close the financial advice gap and help people make better decisions with their money such as when they retire and make pension withdrawals.
The proposals would let regulated firms offer a new type of help called ‘targeted support’ and make suggestions to groups of consumers with common characteristics.
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These could include people who may be currently drawing down on their pension unsustainably, not saving enough for retirement or who have excess cash sitting in a current account.
Sarah Pritchard, deputy chief executive 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.”
What is the advice gap?
The FCA is concerned that while people may have financial products, they don't necessary engage with them in the best way.
According to the FCA’s latest Financial Lives survey, just 9% of adults received financial advice about their pensions or investments in the previous 12 months.
Of those who did not receive financial advice, but hold £10,000 or more in cash savings, 24% said they don’t invest because they don’t know enough about it, 12% because they feel overwhelmed by the number of options available, and 8% said they would need more support before they invest.
Additionally, there are about 7 million adults in the UK with £10,000 or more in cash savings who may be missing out on the benefits of investing throughout their lives, the FCA said.
Rather than people having to pay for financial advice if they feel they don't need or can't afford it, the FCA is proposing creating a new ‘targeted support’ regime allowing more personal help to be provided for free.
Tom Selby, director of public policy at AJ Bell, said: “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."
How will targeted support work?
The FCA has launched a consultation on a designing a consistent method for targeted support.
For example, 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.
Similarly, investment firms can currently inform consumers that there are alternative products with lower charges. Under targeted support, a firm could instead suggest a particular fund which would offer better value.
The change could also mean that pension firms could suggest an alternative drawdown rate if there are concerns that a consumer may be drawing down their pension unsustainably.
Steve Levin of Quilter welcomed the changes but said it is important to distinguish between targeted support and holistic financial advice.
He said: "Those already receiving ongoing advice do not need targeted support, and the new framework should focus on helping those who would otherwise struggle to access guidance."
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