The FCA and the Government are currently undertaking a joint review to examine the regulatory boundary between financial advice and financial guidance.

The FCA has proposed new ‘simplified advice’ or financial guidance rules allowing cheaper or cut-down advice to be provided on a limited range of products.

The ABI has called for any simplified advice rules to cover decumulation decisions given the potential for consumer harm without support.

George Ritchie, senior policy adviser for long-term savings at the ABI, welcomed the proposals for simplified advice due to consumers currently not receiving enough support especially when it comes to retirement.

He said: “Targeted support would allow firms to use limited information about a customer to make suggestions appropriate for ‘people like them’. A simplified advice regime would enable firms to deliver advice using only information relevant to a specific consumer need. If they include certain key features, these proposals would enable firms to provide tailored, affordable support to help consumers through various stages of their saving, investment, and retirement journeys.

“For example, simplified advice needs to cover decumulation decisions given the potential for consumer harm without support and the investment limit should be raised to £225,000 as the average earner in their 30s now is predicted to retire with a DC pension pot of this size in the 2050s. Firms should be able to offer targeted support both via cross-subsidy to existing customers within existing products, and as a supported sales channel. It should allow firms to present clear courses of action to the consumer, with appropriate disclosures to ensure consumers understand the limitations of those suggestions. Regulatory clarity across both proposals is paramount to avoid any new boundary-like concerns.”

He also called for the FCA to “press pause” on the ongoing work to clarify the advice/guidance boundary in order to focus on the introduction of simplified advice.

The shake up to the advice/guidance boundary could pave the way for new ‘simpler’ forms of financial advice which stop short of full, holistic Financial Planning, the FCA believes.

The three main proposals under the FCA’s plans for simplified advice are:  

• Clarifying when firms can give consumers support without giving regulated financial advice
• An "innovative new approach” allowing firms to provide support tailored to groups of people in similar circumstances, the so-called ‘people like you’ or 'targeted support' option
• A new form of 'simplified advice' that makes it easier for firms to provide "affordable" personal recommendations to clients with more straightforward needs and smaller sums to invest - advice which does not have to take all the client’s circumstances into consideration

The FCA says it wants to bridge the advice gap after its latest data showed that only 8% of UK consumers received full financial advice in 2022. It believes that relaxing the advice-guidance boundary will allow regulated firms to serve millions more people with cut-down advice or guidance.

The proposals are part of its Advice Guidance Boundary Review. If it goes ahead, the strict advice-guidance boundary currently in place would be diluted with a new set of potential scenarios where regulated firms could offer more “support” to consumers, particularly those unable afford full financial advice.