A collaborative review by the FCA and the Government of the regulatory gap that sits between ‘financial advice’ and ‘information and guidance’ is underway with a consultation paper open for feedback until the end of this month. 

This review forms part of the UK’s post-Brexit drive to deliver a smarter and more agile, future-proofed regulatory framework which is bespoke to the UK.

The problem is that only a small percentage of adults take financial advice and those who do so are likely to have a significant amount of investible assets. A larger percentage of the population makes use of information and guidance from a range of sources including free resources, workplace schemes, social media and friends and family. It is a concern that without appropriate support consumers might make poor financial decisions and engage with high-risk investments that they do not understand.

The aim of the Review is to ensure that everyone has access to financial advice and has the support that they need to manage their finances and make informed financial decisions. 

The vision is for an investment environment where consumers have enough understanding to invest with confidence, have an appropriate understanding of risk, and are appropriately protected when things go wrong.

The challenge is that this is not going to be a simple or a quick fix, there have been previous attempts over the years that have failed to gain traction with industry. However, post-Brexit and with recent technological advances there could be a new opportunity to make changes that might make a real difference both for consumers and for industry.

Technological advances could offer the chance to develop innovative solutions to suit the needs of the diverse consumer demographic and do so cost effectively which might result in increased accessibility and affordability for a wider range of consumers.

Research seems to suggest that many consumers do not feel confident enough to make complex decisions without a personal recommendation or reassurance from another human being. There are firms who would like to offer more support to customers but fear the potential regulatory consequences of crossing the regulatory boundary and / or cannot make a commercially viable case to provide a more mass-market offering.

The proposals include three options to enable the provision of more support:

• Proposal one: clarification of the current boundary with a view to giving firms the confidence to provide consumers with more support and come closer to the advice boundary without the fear of crossing over it.
• Proposal two: a new option of targeted support enabling firms to broaden the support that they can offer to consumers based on target markets and encompassing the use of technological innovations and improved use of customer data to deliver accessible and cost-effective solutions.
• Proposal three: a new form of simplified advice which will enable firms to support consumers with less complex requirements and smaller sums to invest.

The wider ecosystem will support any new solution within the existing robust regulatory framework with the intention of protecting consumers from harm and enabling them with the information that they need to understand the distinctions between the different kinds of information, advice and support that is available, and go on to make good financial decisions based on the support that they choose to take.

It will be some time before the results of the consultation paper are made public. While it is widely recognised that more people need access to expert financial support to successfully navigate life’s significant and potentially complex financial decisions it must be expected that in order to be able to offer solutions to fill the gap, industry has to be comfortable that it can do so without fear of crossing regulatory boundary-lines and on a commercially viable basis. 

There are many considerations that will need to be made around consumer education and understanding, consumer choices, the unavoidable risk of some poor outcomes, and the more preventable risks. There are also legal friction points that need to be resolved around the interplay between solutions that might fill the advice gap and the Consumer Duty, costing possibilities that cut across previously prohibited practices, customer data collection concerns, advertising and competition. 

In summary, there much work for the FCA in devising a regulatory regime that gives firms the clarity that they need to open up their offerings into the advice gap and also, much work for firms to undertake in order to position themselves with the technology and other resources needed to service offerings in this space. There are some signs already that industry is lining up to take advantage of current challenges in the market, developments in technology and opportunities to push for innovation and development.

This blog is an extract from a longer article on our website. You can click here to read the full text of that article here: FCA’s proposals for closing the advice gap – the Advice Guidance Boundary Review – “empowering consumers to take control of their money” (burges-salmon.com).