On 8 December 2023, HM Treasury and the FCA jointly published Discussion Paper 23/5: Advice Guidance Boundary Review – proposals for closing the advice gap (DP23/5).
As part of the Edinburgh Reforms, it was announced that the FCA and the Government would commence a joint review to examine the regulatory boundary between financial advice and other forms of support. This is now known as the Advice Guidance Boundary Review. This Review provides an opportunity to rethink the way support is delivered to consumers and take advantage of new and emerging technologies to enhance consumer experiences and outcomes. General insurance, mortgages and debt advice are out of scope. The Review will also not include advising on transferring out of a DB scheme or giving up other safeguarded pension benefits.
The Government is aware that consumers can find it difficult identifying that they need support and when they do, their needs are not being fully met. While not everyone will want or need support, many consumers could be missing out on the value support can provide – a situation commonly known as the ‘advice gap’. In practice, there is not a single advice gap representing one problem, but multiple gaps covering overlapping problems. In DP23/5 the term ‘advice gap’ is used to describe different types of financial support, including both financial advice and guidance.
DP23/5 is seeking views on proposals to help close the advice gap. It does this by setting out three initial proposals for FCA-authorised firms, which will sit alongside existing support to give consumers greater levels of support when making financial decisions. The initial proposals are high-level and reflect early thinking and will evolve based on stakeholder feedback and further engagement. They are:
- Further clarifying the boundary (proposal 1): This would provide FCA-authorised firms with greater certainty that they can give more support to consumers without providing a personal recommendation under the existing framework. Building on the August 2023 boundary clarification document, the FCA intends to explore whether further guidance or simplifying existing guidance, would help firms to provide consumers with greater levels of support by giving them more confidence to operate closer to the boundary. In appropriate cases the FCA could also consider rules mandating specific actions.
- Targeted support (proposal 2): This option would rethink the way that financial support is delivered to consumers. This option explores a new regulatory framework which enables firms to broaden the support they can provide to consumers. The support could be offered without explicit charges (i.e., without upfront fees specifically and exclusively relating to the service provision of targeted support), based on limited information, and would enable firms to suggest products or courses of action based on a target market the consumer has been identified as belonging to, rather than fully individualised support. The regulators see this as a key new proposal to help close the advice gap and boost access to financial support across the UK.
- Simplified advice (proposal 3): In November 2022, the FCA set out proposals for a simplified advice regime ‘Broadening access to financial advice for mainstream investments’ (CP22/24). It aimed to provide straightforward, one-off investment advice to consumers with less complex needs. Feedback to the consultation suggested support for a core investment advice regime, but limited support for the specific proposals. This was partly due to firms suggesting there were commercial barriers to implementing the proposed regime. Building on the feedback from CP22/24, the FCA wants to explore a simplified form of advice that enables firms to support consumers with simpler needs and smaller sums to invest, and to do so in a commercially viable way. This proposal is aimed at enabling firms to better support those consumers who want to receive a personal recommendation when making a financial decision but for whom the more comprehensive support provided by holistic advice may not be cost-effective.
The deadline for comments on DP23/5 is 28 February 2023.