Video transcript: FCA targeted support proposals

Transcript

Andrew Strange: The FCA has published the next stage in its proposals for targeted support as part of the broader advice guidance boundary review. The consultation at the end of June, which is open until the end of August, seeks to help consumers make informed pensions and investment decisions.

The new form of targeted support will enable firms to provide suggestions designed for groups of consumers with common characteristics. It'll be delivered on a permissive basis, so it's not mandatory for firms to deliver, and it will be in scope of both the Ombudsman service and the compensation scheme.

Firms will have to work on a four-stage process. They'll need to predefine the situations where they think this is relevant, the consumer segments with the common characteristics to which this would apply, and then predefine the ready-made suggestions for each of those consumer segments for delivering them and verifying that individual consumer groups do align with that predefined segment. Examples include being able to warn a consumer that they may be under saving for retirement, or under targeted support, a firm could suggest an alternative pension contribution rate.

Or more assertively nudging consumers to start saving, where with targeted support, a firm could suggest a specific investment product for an individual.

The FCA has put some limitations on both the products and the providers of the service. It's currently proposing to exclude high risk investment products and firms won't be able to use the service to consolidate pensions or to recommend a particular annuity to a consumer.

The FCA is still maintaining its proposals that firms can provide the service for free, or they can charge if they wish. Clearly, firms choosing to provide the service for free will need to cross subsidise with other activities in order to recover the costs. Commission payments are not going to be allowed.

The Government will also consult shortly on a new regulated activity of targeted support, and firms will actually have to proactively apply for a Part 4A permission in order to deliver this. For any FCA solo regulated firms, the capital requirements are fairly onerous at a minimum of half a million pounds.

It's also unlikely that appointed representatives are going to be able to deliver the service, but that is down finally to Treasury’s decisions.

More broadly, this links into the wider advice guidance boundary debate. Simplified advice, which is currently permissive, is going to be further considered by the FCA, and it wants to review its rules to ensure there's clarity on the flexibility firms have to offer a personal recommendation on a very narrow, specific need. And the FCA intends to consult on amendments to COBS to make that clearer in the future. That's going to allow firms to offer potentially execution only services, targeted support, simplified advice and potentially holistic advice services as well.

At this stage, firms need to consider very carefully whether they strategically want to be involved in targeted support and subsequently things like simplified advice propositions. Clearly under consumer duty, there's some potential here to use these services to stop consumers making poor decisions. Equally, if firms want to go into targeted support, they need to ensure that consumer journeys work to deliver broadly good outcomes to meet the consumer duty obligations. The FCA clearly views this as a potentially high risk area, not necessarily because of the complexity of the products involved, but because of the ability to serve a large number of consumers in a group, which is why they're limiting the scope of this to larger firms to deliver it. As a consequence of that, firms need to be thinking very carefully about the controls and systems they have there, about making sure they have the right guardrails in place, making sure that records are in place as well.

However, at this stage it's potentially a new way of delivering mass market advice to consumers, and it's something that I think a lot of firms will be considering how they can execute, how they can use technology and how they can use this to ensure great outcomes for their customers.