Data from the FCA's Financial Lives Survey in 2022 showed that just 8% of adults reported taking financial advice in the previous year, with many consumers believing they did not need advice despite having investible assets. While some consumers will access guidance - which includes formal organisations such as Pension Wise, private firms such as Which?, and workplace guidance - research suggests this guidance 'does not go far enough to help consumers feel confident' in knowing what to do with their money and that some consumers may not be able to identify when they need support.
The regulator, along with the Treasury, say that this 'advice gap' is driven by a numbner of factors, including those unwilling or unable to pay for advice; consumers who do not trust the quiality or value of advice given; and firms being unsure about what circumstances would require formal advice to be given.
The review aims to clarify the boundary between advice and guidance, allowing firms who are hesitant about the regulatory requirements of providing advice to 'operate closer to the boundary' to support consumers. While mortgages do not fall under the scope of the review, the policy paper notes that firms are reticent to provider support on life insurance due to being'overly cautious about coming closer to the personal recommendation bounday'.
The regulator plans to take feedback on its proposals, which include clarifying the boundary between advice and guidance, giving targeted support to certain consumers, and ibntroducing a simplified form of advice, and will engage with industry stakeholders to determine whether any rule changes need to be made in order to close the advice gap.
The policy paper from the FCA concludes:
"The advice gap is a complex and long-standing issue. To get this right, any proposals need to work for both consumers and for firms. Our thinking is still in its early stages. As a first step, we welcome feedback from a wide range of stakeholders, including consumers and consumer groups to help shape the proposals, including whether there are any proposals we haven’t yet considered. We want to make sure that we have a balanced viewpoint on which areas we should focus on and prioritise. We also want to understand if there might be unintended consequences – eg equality and diversity or competition impacts – if we were to implement any of the approaches suggested in this paper.
Jamie Jenkins, director of policy, Royal London, said:
“This is a step-change from the Regulator in trying to tackle the advice gap. For those who receive professional advice, the benefits are clear, but the journey to that point is built around a framework that is so risk averse that very few people are receiving any meaningful guidance along the way. This is a welcome intervention to attempt to change that.”
Andy Curran, CEO of Standard Life, part of Phoenix Group, comments:
“For far too long we have had both a financial guidance and advice gap, with a majority of people making critical financial decisions with limited support. While financial advisers provide a very valuable service, the costs involved mean it is inaccessible to many and less than 10% of those approaching retirement receive advice. Even when free through Pension Wise, just 14 % of people taking their private pension for the first time currently access guidance to help them make their income choices.
“Most people don’t understand the difference between advice and guidance, and we see across the Group that customers are frustrated when their provider can’t help them in a meaningful way. The direction outlined today is a step in the right direction with a move to provide further clarity around the advice/guidance boundary and also steps that pave the way for providers to be able to offer more personalised information to groups of customers facing similar challenges.”
