The FCA’s new targeted support regime risks further confusion for consumers
The FCA’s new “targeted support” regime, introduced to bridge the gap between generic guidance and regulated financial advice, risks being more complex and less effective than the system it replaces, says Matthew Bowles
Last Monday, the Financial Conduct Authority (FCA) formally introduced its new “targeted support” regime. This is an attempt to bridge the long-discussed gap between generic guidance and fully regulated financial advice.
At first glance, the policy sounds sensible. Just six per cent of UK adults took regulated financial advice in the 12 months to May 2024, and millions continue to sit on large cash balances earning little in real terms. Faced with an ageing population, under-engaged savers and widespread inertia in pensions and investment decisions, policymakers have been searching for a scalable solution.
“Targeted support” is the FCA’s answer: a framework that allows firms to offer suggestions to groups of consumers with shared characteristics, nudging them towards decisions such as investing excess cash or adjusting their pension drawdown, all while avoiding crossing the line into full, personalised advice.
But beneath the technocratic language lies a more troubling reality. This reform risks creating a system that is far more complex, and ultimately less effective, than the one it seeks to replace.
The first problem is conceptual. For decades, British financial regulation has rested on a clear – if imperfect – distinction between “guidance” and “advice”. One is general and low risk, the other is tailored and heavily regulated. Consumers may not have understood the difference, but financial services firms certainly did.
Targeted support deliberately blurs that line. Firms are now expected to provide recommendations that feel personal and are based on customer data, while simultaneously insisting these do not constitute advice. This is not a simplification of the regulatory boundaries, but an added complication.
Ambiguity matters
This ambiguity matters. In financial services, lines that are fuzzy in theory tend to become liabilities in practice. If a consumer were to act on a “targeted” suggestion and later suffers a loss, it is far from clear where responsibility will ultimately fall. The UK’s expansive complaints culture, not least through the Financial Ombudsman Service, may well fail to treat these distinctions with the same nuance as regulators intend. Any negative publicity from irate investors publicly maligning unsuccessful “advice” could easily taint public perception of the whole project.
The result will likely be one where firms proceed cautiously and potentially limit the scope of what they offer. In other words, the “advice gap” that the FCA is trying to solve risks being reproduced only in a slightly different form – essentially a rebrand which the government can laud as a successful reform, with little of substance changed.
Targeted support represents a shift toward a more paternalistic model of financial regulation. The FCA is not merely ensuring markets function properly but is actively encouraging particular behaviours
The second issue is philosophical. Targeted support represents a shift toward a more paternalistic model of financial regulation. The FCA is not merely ensuring markets function properly but is actively encouraging particular behaviours.
The direction of travel is clear. Consumers are to be nudged away from cash and toward investment. Politicians and influencers, such as Rachel Reeves and Martin Lewis have been trying to change these behaviours too. And you can see why – only 23 per cent of Brits have invested in the stock market, compared to nearly two-thirds of Americans (when excluding workplace pensions).
In each case, the assumption is that a regulator will implicitly be making a judgement about what constitutes a good financial outcome. But this raises some uncomfortable questions. Financial decisions are inherently personal; they are often shaped by an individual’s risk tolerance or time horizons. A framework that encourages uniform “better outcomes” risks ironing out genuine differences in how people manage their money in favour of a one-size-fits-all standard.
This raises a further concern about where such nudges ultimately lead. Once regulators begin shaping the architecture of investment decisions, they also acquire the ability to shape the destination of capital itself. That could mean, in time, encouraging flows into politically favoured asset classes, for example toward infrastructure from so-called “sustainable” funds. James Graham’s work on the death of the fiduciary duty speaks directly to this tension.
The third concern is an economic one for financial services companies. Fully fledged financial advice is expensive because it carries significant regulatory burdens and liability. Guidance is cheap because it does not. Targeted support, however, appears to be attempting to combine elements of both: improved customer outcomes alongside regulatory scrutiny under the Consumer Duty.
This creates a rather awkward incentive structure. Firms face higher compliance costs and potential liability without the revenue model of full advice. It is therefore unclear whether many will offer these services at scale through mass sale products or whether they will do so in a highly constrained, risk-managed way.
None of this is to deny the underlying problem. The UK does have an advice gap. Information is readily available, but too many people make suboptimal financial decisions, often through inertia rather than intent. But the solution is unlikely to be found in ever-increasingly intricate regulatory frameworks.
A genuinely market-led approach would focus on reducing the cost of providing advice and allowing greater innovation in how financial services can be delivered to ordinary people. Instead, targeted support adds another chapter to an already dense playbook.
The risk is that the reform ultimately falls between two stools. Either “targeted support” proves indistinguishable from existing guidance, in which case it does little to shift behaviour or close the advice gap, or it is treated by consumers as de facto advice, exposing firms to complaints and reputational damage when outcomes disappoint. In either case, the result is unlikely to be the confident, scalable solution policymakers are hoping for.
In financial regulation, as elsewhere, good intentions are no substitute for clear rules and aligned incentives. In attempting to square a regulatory circle, the FCA risks producing a system that is neither genuinely advisory nor meaningfully simple – just more complex, and less useful than what came before.
Matthew Bowles is senior policy researcher at the Prosperity Institute