With the FCA’s consultation on targeted support drawing to a close and rules expected by the end of this year, many firms will be wondering whether they can or should provide targeted support, and what it might mean for the advice market.
In broad terms, targeted support will be a new service positioned between unregulated guidance and regulated individualised advice. It will allow firms to suggest a particular product or course of action designed for groups of consumers who share common characteristics.
Technically, it would fall under the definition of a personal recommendation. However, unlike individualised advice, any suggestion would not be based on a client’s unique circumstances. Instead, firms would:
- Pre-define a ‘ready-made suggestion’.
- Clearly disclose which consumer segment it is designed for.
- Check that an individual aligns with that segment before delivering the ‘ready-made-suggestion’ to that client.
Targeted support is aimed at retail clients with relatively simple needs. The current intention is that it can’t be used for pension consolidation or the conversion/transfer of safeguarded pension benefits, although this is subject to consultation.
The FCA is also considering whether certain high-risk products, currently barred from the mass market, could be included.
Who can offer targeted support?
Targeted support will be a new regulated activity. Authorised firms wishing to provide the service must apply for a Variation of Permission, while new firms will need FCA authorisation.
Initially, the FCA envisioned targeted support being delivered by banks, life insurers and platforms, not by advice firms.
Targeted support looks more suited to large firms with significant financial and operational resources
However, the latest proposals suggest that advice firms could provide targeted support, provided the distinction between this and full advice is made clear (it is a mandatory requirement that clients are told targeted support is not individualised advice).
At this stage, appointed representatives will not be permitted to offer targeted support. The FCA has requested feedback, but has made clear this decision ultimately lies with the Treasury.
Which firms are likely to offer targeted support?
At first glance, targeted support could appear to be a natural way for advice firms to serve lower-value clients with simple needs in a commercially viable way, while keeping them engaged until they are ready for full advice.
In practice, however, targeted support looks more suited to large firms with significant financial and operational resources, capable of delivering it at scale, electronically and likely for free.
The Big Picture: Is targeted support worth it for advice firms?
A key factor here is the FCA’s apparent requirement that any firm offering targeted support must hold a minimum regulatory capital of at least £500,000. For many advice firms, this is a considerable barrier.
Other points to note:
Mandatory testing
All targeted support disclosures and communications must be tested – a higher bar than under the Consumer Duty, which only requires testing ‘where appropriate’.
Additional client information
If a client volunteers information beyond what the firm requests, the firm must consider it when assessing the suitability of the ready-made suggestion. This could create challenges when targeted support is delivered person-to-person.
Free to the consumer
FCA research indicates consumer take-up is highly dependent on targeted support being free. Cross-subsidy is likely to be allowed, which naturally benefits larger firms.
Ongoing contact
Firms will be expected to contact clients who previously engaged with targeted support, updating them on product changes and prompting them to take action.
What could targeted support mean for advice?
The FCA has suggested that firms best placed to deliver targeted support include those with:
- Access to rich consumer data (such as banks, building societies, D2C platforms, life insurers, investment managers);
- A large existing customer base; and/or
- Vertical integration, which makes cross-subsidisation more feasible.
This is reinforced by FCA findings that firms intending to offer targeted support already hold 60% of branded investment accounts, 24% of the advice market and 59% of current accounts.
The FCA expects some consumers who currently receive advice to move to targeted support. Based on its estimates, the average wealth of a consumer acting on targeted support will be around £37,370.
The boundaries between unregulated guidance, simplified advice and full advice remain unclear
While firms delivering targeted support are encouraged to signpost clients to individualised advice where appropriate, this is not mandatory. There is also no restriction on firms directing consumers to their own or affiliated advice services.
For smaller advice firms, this could bring significant competitive pressure. Those seeking to retain lower-value clients, with a view to converting them into full advice clients later, may need to revisit their marketing and proposition strategies.
The FCA has hinted that unregulated guidance and forthcoming proposals on ‘simplified advice’ could provide alternatives. However, the boundaries between unregulated guidance, simplified advice and full advice remain unclear.
Until greater clarity is provided, many firms may be hesitant to explore these options for fear of crossing regulatory lines or facing suitability complaints. This, in turn, creates a challenge for the FCA.
What should firms do now?
While the FCA’s rules are not yet finalised, advice firms can take a few practical steps to prepare:
Stay close to developments
Monitor FCA updates on targeted support, simplified advice and guidance boundaries so you can respond quickly when rules are confirmed.
Review your client segmentation
Consider whether you have groups of lower-value clients who could benefit from more scalable services, and how you might engage them until they are ready for full advice.
Assess your operational capacity
Think about the technology, communications and testing requirements that would come with delivering targeted support, even if you don’t intend to offer it immediately.
Revisit your proposition strategy
Reflect on how you position your firm against larger players who may enter this space at scale, and whether offering enhanced guidance or education could be a differentiator.
Plan your communications
Start considering how you would explain the differences between targeted support, simplified advice and full advice in a way that clients understand and trust.
By taking these steps now, firms will be better placed to adapt, whether targeted support becomes a tool to grow client relationships or a competitive pressure that reshapes the market.
Julie Hardie is a policy consultant at threesixty services
