DP23/5: Advice Guidance Boundary Review – proposals for closing the advice gap

The HM Treasury and the Financial Conduct Authority, FCA, have jointly launched a discussion paper (DP23/5) in relation to the Advice Guidance Boundary Review (AGBR) to bridge the advice gap and make financial advice more accessible to retail customers. The advice gap results either from
– consumers NOT having the information they need at the time when they need it to make informed financial decisions – irrespective the fact of whether or not such information may be considered „advice“ for purposes of the FCA Handbook or other rules and regulations of the financial market regulators; or
– consumers not taking advantage of currently offered advice for various reasons (e.g. cost of advice).
The purpose of the discussion paper is to explore options to make financial advice – whether in form of financial advice for targeted groups or via other forms of support, e.g. additional individual communications – more accessible, thereby fostering a more inclusive and supportive financial landscape and promoting investments in the UK financial market. The AGBR ultimately strives to create a continuum of help, guidance, and advice within the regulatory framework to ensure that ALL customers get the „advice“ they need for purposes of making informed decisions. In the end, improving customers‘ access to advice and getting more consumers engaged in the financial market should make it easier for businesses to raise investment and encourage innovation in the industry.
##### To achieve the objective of the AGBR, the regulators are currently considering the following three options:
(1) Further clarifying the advice boundary (Option 1): Under Option 1, the FCA and the Treasury propose to offer additional clearer guidance to FCA-authorized firms regarding the extent of support they can provide to consumers without issuing a personal recommendation which would in turn require registration as a financial advisor. This option builds upon previous boundary clarification efforts and seeks to explore whether additional guidance or simplification in existing guidance could empower firms to offer consumers more support within the existing regulatory framework. The FCA provides a nice example in this context: For instance, it could clarify whether or not the communication to a customer who holds cash in an ISA to warn him or her of the detriment of inflation would constitute financial advice or would simply be considered „additional“, valuable information.
(2) Targeted support (Option 2): Under Option 2, the regulators suggest a reconsideration of the current approach to delivering financial support to consumers. This option explores the idea of creating a new regulatory framework that allows firms to expand the support they offer, potentially without upfront charges directly tied to the provided service. This support would be based on limited information and could involve suggesting products or actions tailored to a specific market segment rather than to an individual. For example, the FCA could allow firms to offer alternative options to a customer investing in an investment fund with a 20% equities and 80% bonds distribution where the firm found that – based on a customer’s investment horizon and other relevant data – the alternative fund’s asset allocation aligns with the needs, characteristics and objectives of the target market the consumer is identified as belonging to.
(3) Simplified advice (Option 3): Building on prior feedback from the „Broadening access to financial advice for mainstream investments“ proposal, this option aims to explore a simplified form of advice catering to consumers with simpler needs and smaller investment sums. This proposal seeks to enable firms to efficiently assist consumers who seek personal recommendations but may not require the comprehensive support provided by holistic advice as provided by registered investment advisers, thereby addressing potential cost-effectiveness concerns for both consumers and firms. For example, such simplified advice could be offered by firms who are approached by customers who have been invested for a long time, but never reviewed their investments, to conduct such review and „recommend suitable alternatives“.
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Each of the noted options would result in different regulatory actions, ranging from the adjustment of existing guidance in the FCA’s PERG, to the adoption of new rules for a „simplified advice“ regime.
The HM Treasury and the FCA are now calling on industry stakeholders, including fund managers, investment firms, financial advisers, insurance companies, banks, and many others, to actively engage in the AGBR and provide their views on developing more accessible, affordable, and innovative services for consumers. The discussion paper will close on February 28, 2024. Responses may be submitted via this website.