Advice Guidance Boundary Review – DP23/5

Who has issued the paper and what does it cover?

The paper is a discussion paper issued by the FCA and HM Treasury on the Advice Guidance Boundary Review.

The paper covers the “Advice Gap”.  The numbers of customers of financial institutions that are using financial advice is small and concentrated in the higher wealth brackets, yet consumers have more choices than ever before, increasing complexity.  A large proportion of the population are acting on their own and not using advice, although some are using formal or informal guidance.  Some see financial advice as of no or limited value, or they cannot afford it, and some are considered to be below the “pot size” that would qualify with some advisers.

The paper considers this to be a problem that leads to consumers making decisions that are not in their best interests and that there is therefore a need to provide some form of guidance or advice to these people.

Three potential solutions

There are three potential solutions suggested by the paper, all aimed at FCA-authorised firms, and they are not necessarily exclusive:

  1. Provide more guidance to firms on where the boundaries lie between guidance and support to customers and tailored advice, in addition to the FCA advice in August 2023. This would remove some of the uncertainty that firms suffer from that creates fears that they may be providing advice without carrying out full fact finds and causes them to not offer support.  Areas mentioned here include making sure firms know they can tell customers that high levels of drawdown may cause their pension pot to run out early leaving them reliant on state benefits.  They may even be told what level of drawdown would be more sensible.
  2. Provide targeted support. This is summarised as the “people like you” option.  Firms may use limited data on an individual to show products that fit the target market the client is in.  The support could cover decisions within an existing product or potential new products for the client.  For example, a client who has a large deposit balance may be told that “people like you” benefit from a stocks and shares ISA providing better returns over the longer term.  This would be a new category of support and would sit between guidance currently available and the holistic tailored advice currently given by an IFA. The FCA suggests it would be offered either at lower charges than holistic advice or without explicit charges, but with firms disclosing associated charges to the consumer.
  3. Extend simplified advice to cover larger pots and deal with specific savings issues. The proposal is to extend this to include pots up to £85,000 and extend the products to include accumulation on pensions but not decumulation (seen as too difficult).

The FCA and HM Treasury asked for feedback on these options by 28 February 2024.  They appear committed to dealing with the Advice Gap, to the benefit of both consumers and the financial services industry.