The government has confirmed its intention to take forward a proposal for targeted support as part of its joint review with the Financial Conduct Authority (FCA) on the regulatory boundary between financial advice and guidance.

In a policy note published by HM Treasury, the government claimed that targeted support would enable authorised firms to provide more tailored support with investments and pensions, making recommendations designed for groups of consumers with similar characteristics and circumstances.

Explaining how the proposal could be implemented as part of the current Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, it proposed an amendment order to create a new specified activity of providing targeted support.

It set out that when a firm offered targeted support, it would not be ‘advising on investments’ under Article 53 of the Regulated Activities Order (RAO).

The government argued that, under the current regulatory framework, targeted support would fall within the existing definition of a ‘personal recommendation’ as set out in Article 53 of the RAO and associated guidance, such as the FCA’s perimeter guidance.

The FCA has previously acknowledged that existing requirements relating to the provision of personal recommendations make it difficult for firms to establish support models such as the one proposed, stating it was "crucial" that the provision of targeted support is regulated differently from existing forms of advice.

Therefore, the policy note stressed that it would be “particularly important” for firms to clearly disclose the nature and limitations of the service they were providing, so that consumers understood they were not receiving a more individualised form of advice.

Personal recommendations that do not align with the definition of targeted support will continue to be regulated as ‘advice on investments’ under Article 53 of the RAO, the document added.

It warned that amending the ‘personal recommendation’ definition would disrupt existing advice services and place a significant burden on advice firms to ensure that their services align with the new definition, a move that it does not consider necessary to achieve the aims of targeted support.

Indeed, the government and the FCA want firms to continue offering a range of advice services, including robo-advice and more simplified forms of advice, and to continue innovating to develop more accessible and lower-cost services.

HM Treasury is continuing to seek feedback on the proposals, with the intention of legislating this year.

Aegon pensions director, Steven Cameron, welcomed the policy note, saying it brought targeted support “one step closer to reality.”

“Many customers may not have the best balance between cash savings and stocks and shares investments. For those who don’t seek advice, targeted support will equip them more to make the right decisions for themselves,” he said.

“This includes understanding the benefits of moving excess cash into a stocks and shares ISA, potentially benefitting from much higher returns, albeit at the expense of the ‘no loss’ security of cash savings.

“The government and the FCA have been working with the industry on this for some time,” continued Cameron, stressing that the service would sit “somewhere between” the current options of general information/guidance and full financial advice.

"Unlike full advice, it won’t involve a personalised recommendation based on each individual’s full circumstances. Instead, firms may reach out to customers, offering suggested actions to groups of people sharing common characteristics," he said.

He added that, as well as offering suggestions around investing ‘excess’ cash, targeted support may be used to suggest contributing more to a pension for an adequate income in retirement, or to support choosing between different retirement income options.

However, Wealth at Work director, Jonathan Watts-Lay, warned that further consideration was necessary to ensure the right support was provided to help all individuals.

“By design, targeted support is not holistic and therefore will not consider all of someone’s accumulated wealth as well as their personal circumstances and needs,” he explained.

“So, for many with larger sums of money, regulated advice will still remain the best option, especially when planning for retirement or considering retirement income options, as this can be complex.

“Therefore, targeted support may not be a solution for everyone, although it could possibly offer a gateway to advice for some,” Watts-Lay said.

The director added that some are concerned that targeted support could lead to targeted sales, and stressed that consumer protection is key, noting that “the devil will be in the details” of the regulatory framework.

He also highlighted the balance between consumer protection and regulation as another challenge.

“If the regulation is too stringent, few firms may sign up to offer the service, whereas if it is too relaxed, there are concerns around potential mis-selling,” he warned.

“So, the definitions of how the characteristics define the solutions are key and could become a legal minefield which pension trustees may be uncomfortable with.”

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