When we talk about improving financial resilience in the UK, the focus is often on solving the advice gap and making regulated financial advice more accessible.
The Financial Conduct Authority’s advice guidance boundary review aims to address this, including the proposed introduction of targeted support, which would fill the gap between regulated advice and generic guidance.
Currently, there’s a regulatory grey area here, and many providers are wary of overstepping the line. As a result, consumers often receive information that’s too general to be genuinely useful.
Targeted support could help bridge this gap by giving consumers a clearer steer on actions they could take, offering a middle ground for those not ready or able to seek advice.
The government reaffirmed its commitment to targeted support in the Spring Statement, saying that it’s “working closely with the Financial Conduct Authority to deliver a system of targeted support to give people the confidence to invest.”
However, while the concept is an important step forward, delivering it in practice will be a challenge.
One significant issue is delivering guidance that is tailored enough to be useful, without crossing into regulated advice. Consumers need to understand that targeted support isn’t a personal recommendation, and that they must consider their circumstances.
The central idea of targeted support – to group consumers with similar characteristics and guide them towards relevant solutions – is also its problem
Then there’s the commercial challenge. The FCA expects pension providers to offer targeted support free at the point of use as part of their ongoing service. But what’s the incentive? I believe there are clear arguments in favour for some firms.
Those that get it right could see higher contribution rates, increased product sales, stronger customer relationships and a greater share of consolidation assets. But that means investing in a solution that delivers real value to customers and encourages meaningful engagement.
The central idea of targeted support – to group consumers with similar characteristics and guide them towards relevant solutions – is also its problem.
While people may share broad similarities, their individual circumstances can differ significantly. Effective segmentation must consider outcomes as well as characteristics.
However, this creates its own difficulties. Ask too few questions and the guidance might not lead to better outcomes. Ask too many and consumers may disengage or misinterpret support as a personal recommendation.
Many providers also don’t want to collect too much detailed data because they are concerned about the resulting regulatory obligations, or are uncertain how to use the data effectively.
Even accessing their existing data can be a challenge – the Pensions Regulator recently highlighted that a quarter of pension schemes still hold data in non-digital forms.
Understanding which data points are important can solve the problem of under/over-gathering information.
With pension drawdown, a £1m pot doesn’t automatically mean drawdown is the right choice. The individual’s income needs, other financial commitments and long-term goals all matter.
Creating suggestions for targeted support in a silo will lead to inconsistent journeys
This is where targeted support needs to be sufficiently granular. It should use an objective, rules-based approach, testing a range of scenarios to predict the likely outcomes. Segmentation can then be built on these insights.
Finally, results must be consistent. Creating suggestions for targeted support in a silo will lead to inconsistent journeys. Segmentation and consideration of outcomes should be looked at in the context of the whole support spectrum.
Behavioural techniques can make the customer’s digital data-capturing journey feel less arduous. Automated algorithms can calculate a wide range of outcomes, identify key data points and support intelligent segmentation.
Customers can then be alerted to specific actions or ready-made solutions using comprehensive interactive modelling tools to explore further and better understand the implications of their choices. If needed, they can be directed to take advice for additional support.
Striking the right balance is key. If targeted support is too general, it risks being ineffective. Too detailed and it could cross into advice. To be effective, the FCA must set clear rules that support providers in offering actionable suggestions, and support consumers in making informed decisions.
Getting it right could make a real difference by encouraging earlier financial engagement and building confidence.
Targeted support could be a powerful tool in delivering better outcomes – even a game-changing one.
Chet Velani is managing director of EV
