The need to help consumers make better informed financial decisions is now greater than ever. Repeated changes to the way in which we save, the tax environment and most pressingly, the way in which we are able to spend our pension wealth have sharpened the focus of both savers and investors, while adding further complexity to the personal finance landscape. As the cost of a comfortable retirement rises and retail investors are encouraged to allocate more funds domestically, it is clear that the reach of financial advice must expand.
According to St James’s Place, around 25 million people in the UK have never received regulated financial advice or guidance - we have a support gap in this country. To their credit, the FCA’s targeted support proposals look set to make progress in closing this gap. This is a clear, albeit first, step towards delivering a comprehensive solution. Whilst targeted support will be able to signpost and suggest steps based on broad characteristics, we know from our own members that what consumers really value are recommendations tailored to their own needs.
Targeted support only goes so far
Different consumers have very different needs. In moments where they are required to make life changing, complex decisions, their needs will be best met through a full continuum of support. Going forward, this will mean preparing them to recognise and make these decisions through a fit for purpose financial education system, targeted and holistic financial planning. Each stage within this has a clear role to play in strengthening the UK’s financial advice ecosystem.
Within this continuum, we still recognise a gap. Targeted support, welcome as it is, has clear and obvious limits attached to it. Rather than providing tailored recommendations built around a person’s unique circumstances, targeted support will offer suggestions based on groups of consumers with common characteristics. By design, targeted support will only be able to help consumers understand what they could do, not what they should do.
While targeted support will deliver good outcomes for consumers, we continue to believe that there is clear scope to provide more personalised, and ultimately better, outcomes through simplified advice. As alluded to above, there still remains a gap between targeted support and holistic advice as we understand it and we strongly believe that now is the time for government and regulators to go further by expanding the Advice Guidance Boundary Review (AGBR) reforms, which are intended to widen access to meaningful, regulated support.
A clear pathway to more personalised support
By definition, simplified advice – a simple form of advice intended to service a specific need - can provide a lower cost service than holistic advice. By building confidence and trust it can also act as a gateway to a deeper advisory relationship over time. It will help consumers cross from support based on the characteristics of the many to providing targeted recommendations based solely on the needs of one person.
Simplified advice should be the missing link that connects mass-market savers with the benefits of regulated advice, strengthening the entire advice ecosystem. With clear rules, proportionate qualification requirements, and alignment between the FCA and Financial Ombudsman Service (FOS), simplified advice has the potential to reshape the UK’s advice landscape by closing the gap between targeted support and financial advice.
Put simply, with the right framework in place, simplified advice can make personalised support more accessible to millions.
Addressing structural barriers
Without reforms to qualification requirements, simplified advice is unlikely to scale commercially. Under the current system, firms face a clear opportunity cost when deploying qualified advisers to provide simplified services, which naturally would – or should – command lower fees. Firms must be able to deliver simplified advice at a proportionate cost, which is why a review into qualification requirements would be a welcome step forward.
Elsewhere, the Conduct of Business Sourcebook must be refined to set out clear, distinct rules governing simplified advice. Firms need confidence that regulatory obligations are aligned with the scope of advice they are giving, and that the FOS shares the same understanding. Without clarity and consistency, firms will remain cautious about entering this space.
If simplified advice is to fulfil its potential and genuinely help bridge the advice gap, these structural barriers now need to be addressed with urgency.
