Out-Law News 3 min. read
09 Jul 2025, 9:52 am
A new type of regulated ‘targeted support’ could help close the advice gap for UK consumers making pensions and retail investment decisions, experts say.
A recent consultation launched by the Financial Conduct Authority (FCA) outlines draft rules and guidance for pension schemes and providers t to offer 'targeted support' as a halfway house between unregulated guidance and fully regulated financial advice
The consultation paper (251 pages/ 2.2MB) forms part of wider government reforms to ensure “better outcomes” for people saving into defined contribution (DC) pensions amidst growing concerns that too many individuals lack adequate support when making significant pensions and retail investment decisions, resulting in poor long-term financial outcomes.
As a new regulated activity, firms will need to apply for permission to provide ‘targeted support’ regardless of whether they hold existing permission to provide advice on investments or not.
Among the proposals, the consultation paper outlines that firms cannot use ‘targeted support’ to suggest that consumers consolidate any pensions either out of or into a particular product. Firms must also communicate with customers that ‘targeted support’ is based on limited information and not personalised finance advice.
The government has said that it will publish a policy note setting out proposed changes to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 and a draft statutory instrument alongside the upcoming Mansion House speech by UK chancellor Rachel Reeves on 15 July.
The consultation will be open for comments until 29 August. It comes two years after the introduction of consumer duty, which requires all firms regulated by the FCA to act to deliver good outcomes for customers. Although the FCA proposes that consumer duty would apply to all provisions of ‘targeted support’, it says a firm does not need to provide ‘targeted support’ in order to fulfil its duty obligations. The consultation sets out key components of the duty that will be relevant to firms that do choose to provide this type of support free of charge.
Under the draft rules, firms will not be permitted to solicit or accept commissions or other benefits in connection with ‘targeted support’ or related services. Where ‘targeted support’ is free of charge, providers must disclose to customers how they will be remunerated for providing the service. All charges must be disclosed and agreed with clients and meet consumer duty requirements.
The FCA also plans to review rules relating to 'simplified advice' for customers with straightforward needs and to clarify the boundary between simplified advice and more holistic advice for customers with greater wealth or more complex circumstances.
The FCA aims to publish final rules on ‘targeted support’ by the end of 2025, although the regulator has said this is dependent on the extent of the feedback it receives from the consultation. The authorisations gateway and support service will open before the rules come into effect to allow ‘targeted support’ services to go live as soon as possible. The regulator will consult “later this year” on “residual consequential changes” from proposals in this latest paper.
Commenting on the consultation, Tom Barton, a pensions expert at Pinsent Masons, said: “It's important that DC occupational pension schemes consider this new kind of support when they are delivering mandatory new retirement defaults as envisaged by the Pension Schemes Bill,” he said. “The FCA and the Pensions Regulator want DC trustees to engage with this consultation, as targeted support and default retirement solutions will influence how they choose to support members.”
Chris Riach, an insurance regulation expert at Pinsent Masons, welcomed the proposals as a “win-win” situation for consumers and firms. However, he hopes the FCA will use this consultation period to work with other regulators to ensure the new activity is optimised to work in consumers’ best interests. “There remain some key areas where the FCA accepts it has further work to do, not least in liaising with Financial Ombudsman Service (FOS) and the Information Commissioner’s Office (ICO) to ensure firms have certainty on risk exposure and privacy obligations respectively,” he said. “Both of these are crucial to the success of the proposals and the proposed timeframe leaves little room for protracted discussions. It would be extremely useful for the FOS and ICO to publish supportive statements sooner rather than later to help maintain momentum.”
The proposals will also help individuals make decisions about retail investments more than 10 years since the FCA’s Retail Distribution Review introduced major changes designed to make the retail investment market work better for consumers.
In 2024, an estimated 19 million UK adults held retail investment products, highlighting the need to fill this crucial “advice gap”, said Elizabeth Budd, an expert in financial services regulation at Pinsent Masons. “These long-awaited proposals go a long way to closing the advice gap that has existed for many years,” she said. “It’s good to see them broadening out from the pensions space to include investments. What firms will be looking for is a clear understanding of where the boundaries between the different forms of guidance, support and advice and the consequences attaching to each.”
Budd said the draft rules are just one of “a number of building blocks being put in place to encourage investment and growth” ahead of the chancellor’s Mansion House speech on 15 July.
Co-written by Elizabeth Budd, a financial services regulation expert at Pinsent Masons.
Out-Law News
05 Jun 2025