The Financial Conduct Authority (FCA) has outlined the basis for its joint review of the advice guidance boundary with the Treasury, as part of its work to ensure that consumers "get the help they want, at the time they need it, and at a cost that is affordable".

The FCA highlighted a number of key themes identified as part of the early stages of this work, which are expected to guide the next phase of the review.

In particular, the FCA suggested that the solution to this challenge will not be met by changes to regulated advice alone, arguing that firms need to actively engage and provide flexible forms of support that can adapt to different types of financial decisions.

It also acknowledged that, in order to provide more support, it will be necessary for firms and consumers to manage risk, rather than eliminate it, as risk is a key driver of cost to firms and ultimately to consumers, which directly impacts on the availability of support. 

In addition to this, it suggested that any solution will rely on support being provided on a commercial basis, confirming that the review will look to focus on outcomes and design a regulatory system where commercially viable models of support can emerge.

More broadly, the FCA confirmed that its plans to create a new ‘core investment advice’ regime have been put on hold and rolled into the wider advice guidance boundary review, given the potential for “more significant change”.

“The consistent feedback from the consultation was that firms wanted the proposals to go further in terms of examining the boundary between advice and guidance – in rolling this work into the boundary review we will be able to consider and develop proposals for more significant reform,” the FCA stated.

“We will provide a further update in a policy paper that will be published in the autumn.”

In the meantime, the FCA provided some clarification for those firms who want to support consumers more, particularly during the cost-of-living crisis, without providing a personal recommendation.

As part of this, the FCA outlined a number of examples where a conversation with a consumer would not be classed as a personal recommendation, including where they about the difference between an Individual Savings Account (ISA) and pension, where a firm points a consumer to tools which can help them budget, or where a consumer who wants to take out an annuity has a partner.

The FCA also set out examples of good practice where it would expect firms to help consumers and comply with the Consumer Duty, including signalling the drawbacks of having too much cash that is not invested or outlining the risks of transferring a pension if valuable benefits may be lost.

Commenting in the update, FCA executive director of markets, Sarah Pritchard, stated: “It is vital that people get the help they need to make effective decisions – whether that be guidance or full financial advice from a qualified financial adviser.

"This is particularly so now, with the cost-of-living pressures. We want consumers to have greater confidence to invest, but to achieve that people need access to the right information to help them make decisions, understanding levels of risk.

"Our joint work with the Treasury in the months ahead will help to achieve that. In the meantime, and to see quicker improvements, we are taking steps now to give firms greater confidence to support consumers, pending broader reform, by clarifying the boundary of the current regime.”

Adding to this, FCA practitioner panel member and Hargreaves Lansdown CEO, Chris Hill, stated: “Data and digital tools mean there is now a lot more we can do to nudge consumers to better investing behaviours.

“The clarity the FCA are bringing today on the advice boundary, and the commitment to review this, show that we can develop a new regime to ensure firms can do more to drive better consumer outcomes.”

Aegon pensions director, Steven Cameron, also welcomed the update, particularly the recognition that the solution to supporting customers make informed financial decisions will not be met by changes to regulated advice alone.

He stated: "The current regulatory regime, with very limited options alongside full regulated advice, has created an even wider ‘support gap’, which has been exacerbated by the cost-of-living crisis.

“It’s imperative that advice services continue to thrive. But to complement this, there could be major benefits if those regulated firms who want to, were permitted to offer a new more personalised guidance service.

"This might allow them to support currently unreachable client groups, getting them on the road to good ‘Consumer Duty’ outcomes. And once these clients begin to appreciate the benefits, they’re much more likely to return to the adviser for full advice when they need it."

“We also welcome the FCA pausing consideration of its core investment advice proposals. While the aims of extending support were right, the rules were very narrow in scope and focus."

This was echoed by AJ Bell head of retirement policy and a member of the working group advising the advice guidance boundary review, Tom Selby, who argued that "the FCA and the Treasury deserve credit for recognising that pushing ahead with ‘core advice’ plans that very few in the industry supported was a dead end".

More broadly, Selby argued that the review has the potential to "radically improve the support savers and investors in the UK receive".

"As things stand, lack of clarity over that boundary, combined with strict rules which prevent personalisation of communications, mean millions of people are receiving only very generic help from firms when making often complex financial decisions," he continued.

“The clarification on the advice guidance boundary provided by the FCA today may prove useful, although it is likely more radical reform will be needed further down the line if we are to make a meaningful dent in the ‘help gap’."

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