The FCA’s latest proposals on targeted support and simplified advice are a welcome attempt to address the persistent and damaging advice gap. But their success may rely as much on the actions of other government bodies and regulators as the FCA itself.
The economic case for widening access to advice-style services is stronger than ever. FCA research, released alongside the consultation, shows that regulated financial advice can boost an individual’s wealth by up to 10.2% within just two years.
Even after adjusting for lump sum bias and outliers, the average uplift remains at 7.8%, equating to potentially tens of thousands of pounds for consumers making better-informed decisions about pensions, savings and investments.
There’s already a largely overlooked mechanism that could help deliver this benefit at scale: the £500 tax exemption for financial advice. Introduced in the 2017 Spring Budget and formalised in the Finance Act 2017, this exemption allows employers to offer up to £500 worth of financial advice per employee, per tax year, tax-free. It covers guidance on pensions, general savings and financial products: the exact areas targeted by the FCA’s new initiative.
The potential impact is substantial. If a mid-career employee with £50,000 in pension and savings received advice paid for via the exemption, the resulting uplift in wealth could be worth £3,500 to £5,000. That’s before factoring in softer but equally important outcomes like reduced stress, improved retirement confidence and more effective use of workplace benefits.
FCA research shows that regulated financial advice can boost an individual’s wealth by up to 10.2% within just two years
Because the exemption renews annually, it could support subscription-style digital or hybrid services, enabling employees to receive updated advice year after year, without triggering tax liabilities.
Yet, despite its promise, this incentive remains woefully underused, largely due to lack of awareness and historic uncertainty around qualifying services. I’m often surprised by how many major advice firms have never heard of it.
That’s where the FCA’s proposals could make a difference: if HMRC confirms the new simplified and targeted services qualify under the exemption, and the Financial Ombudsman Service (FOS) agrees to assess complaints in line with the limited scope of these new models.
Without assurances from both HMRC and FOS, advisers and employers are unlikely to risk embracing the new models
The FOS has previously undermined efforts to simplify advice by applying an inflexible, gold-standard approach to all cases, regardless of service scope. Without assurances from both HMRC and FOS, advisers and employers are unlikely to risk embracing the new models.
This would be a missed opportunity. We know from behavioural economics that cost remains one of the biggest barriers to seeking advice. If the government and regulators collaborate to clarify and promote this tax break, advice could become effectively free at the point of use for millions.
The FCA has built the framework. HMRC holds the tax lever. FOS must support it. If they do, advisers and employers will have the confidence to act — and consumers will be the ones to benefit.
Ian McKenna is the founder of FTRC
