As we await the FCA’s second consultation paper on Targeted Support, we take a moment to reflect on the compelling reasons for its introduction. We explore how it might work in practice and consider some of the key challenges that lie ahead.

Closing the “advice gap”

Over recent years, the financial services industry has collectively expressed increasing concern about the growing “advice gap”. Many consumers need help making informed financial decisions (particularly around investing and saving for retirement) but either cannot afford regulated advice or do not perceive it as accessible or relevant. This group—who would benefit from financial advice but are currently not receiving it due to cost, complexity, or uncertainty about value, represent a significant proportion of the retail market.

Recognising this, the FCA has proposed a new category of support: Targeted Support. This new model is designed to enable firms to provide personalised, contextualised help without crossing the regulatory boundary into regulated financial advice.

As we head towards the end of H1 2025, anticipation is building around the FCA’s second consultation paper which is expected in the coming weeks. The proposals aim to help consumers access the necessary guidance and support in an accessible way to help make informed financial decisions. 

Quick recap

The FCA’s Retail Distribution Review (“RDR”), introduced in 2012, transformed the investment advice industry. Prior to RDR, financial adviser firms were largely remunerated by way of commissions from fund managers and insurers based on product sales. From the retail customer’s perspective, the financial advice was often perceived to be “free”.

RDR fundamentally changed this model by mandating greater transparency. These days costs must be disclosed and paid for by the retail client. In addition, ongoing fees can only be charged where ongoing advice is provided. In other words, firms cannot use an ongoing fee model to recover the cost of advice unless they continue to provide a service.

These reforms improved transparency, raised professional standards and helped reduce conflicts of interest. However, there has been a major unintended consequence of the RDR: the “advice gap” widened significantly.  Some might argue this was a foreseeable outcome, but that is a discussion for another day.

How big is the “advice gap”?

Those in the “advice gap” often have a sizeable amount of assets or savings but not enough to make it commercially worthwhile for advisers to provide advice or for a retail customer to justify the costs associated with the advice. The problem has also been exacerbated with the gradual shift from a reliance on defined benefit pensions to defined contribution pensions, which require more individual responsibility.

To put this into context – some adviser firms we’ve spoken to have minimum thresholds for investable assets of £200,000 or more (and for some, it’s a lot higher). This effectively prices out a large segment of the population from accessing traditional financial advice and there are concerns across the industry about the relatively low numbers of consumers who are receiving regulated advice.  

What are the proposals?

Recognising the scale and persistence of the “advice gap”, the FCA announced at the Edinburgh Reforms in December 2022 that it would be carrying out an Advice Guidance Boundary Review (“AGBR”) and since then, it has been working with the industry to find ways to close the gap and provide alternative options to allow more retail customers to access meaningful support without needing to pay for full regulated advice.

In December 2023, the FCA and Treasury published a joint discussion paper (DP23/5), which outlined early thinking on how to redefine the boundary between advice and guidance. This was followed in December 2024 by CP24/27 which focused specifically on Targeted Support for pensions, the first area where new rules could apply. Recognising the complexities of this area, the FCA has been working with the industry (including holding a policy sprint earlier in the year) and plans to publish a second consultation paper for pensions and investments, which it has indicated will be by the end of June 2025.    

It is through this process that the concept of Targeted Support has started to take shape.  While the idea of Simplified Advice remains up for debate, it is effectively on hold for now - although an update is expected in the next consultation paper.

Targeted Support, in the FCA’s words, “would exist between current guidance-based services and more bespoke advice. It aims to help consumers, at scale, make effective, timely and properly informed decisions about their pensions.”

Key points from CP24/27

The overriding message from the first consultation is that of ‘progress over perfection’ and retail customers receiving a “Better” outcome, even if it is not the “Best” outcome i.e. a personalised recommendation.

The FCA focus on four aims for Targeted Support:

  • Scalable: so it can be offered to a large number of consumers, and presumably make a demonstrable impact on the “advice gap”. The FCA thinks this could be achieved by the support being designed for groups of people with shared common characteristics, as opposed to personalised individual solutions.
  • Attractive to consumers to take up: this means it has to be easy to access and affordable or free. This is an interesting one given the transparency objectives of RDR and ensuring that retail customers knew what the costs were, and from a provider perspective it means that Targeted Support will have to be cross-subsidised from another business area. 
  • Able to go further than guidance-based services: so that consumers get an actionable suggestion, rather than a list of potential options with no particular suggestion either way.
  • Trusted and of high quality: which in practical terms means that Targeted Support will likely be a regulated activity (rather than falling out with the regulatory perimeter or being part of an existing regulatory permission) and subject to specific conduct standards.

The FCA envisages the Targeted Support being given over three stages:

  1. Pre-defined scenarios where customers could achieve better outcomes.
  2. Pre-defined consumer segments for whom better outcomes could be achieved in those scenarios.
  3. Ready made solutions to deliver better outcomes that are suggested to all consumers in the same consumer segment.

As ever, the devil will be in the detail, and (amongst many other things!) firms will need to demonstrate that they have reasonable grounds for believing that the delivery of Targeted Support suggestions would deliver a better outcome for their customers than if Targeted Support was not provided.

What are the challenges?

Taking steps to reduce the “advice gap” is essential for the millions of retail customers currently unable to access financial advice.  Against the backdrop of RDR and numerous previous concerns with firms overstepping the mark and giving “advice” without appropriate permissions, it is critical that the FCA paves the way on this and sets out a clear and sustainable regulatory framework.

While the concept of Targeted Support has been widely supported to date; several important challenges still need to be overcome before it can be effectively implemented. For example:

  • Whilst acknowledging firms’ participation in the FCA’s sprint around investment decisions, it is not yet clear what the actual commercial appetite is for providing pensions Targeted Support. Given the FCA expect it to be provided for free, or at least be “affordable”, it is not immediately obvious what the business benefits are for any provider of Targeted Support. There will be significant set-up and ongoing costs, and risks to manage, so the business case for entering the Targeted Support space is challenging.
  • How much information will providers be expected to know about the client that they are giving the Targeted Support to? The “people like you” terminology has been replaced by the FCA and is now “people in your circumstances”, but without carrying out detailed investigations, it is not clear how any providers will know what the retail client’s circumstances actually are (or how that compares to anyone else!). It is also not clear how much information will be considered to be reasonable or appropriate.
  • Without more detailed knowledge on the client’s circumstances, how will any provider know what is or isn’t an appropriate contribution level and/or sustainable drawdown rate? The FCA previously noted that the provider would use the limited information held about the consumer “and possibly extra information from the consumer” but obtaining extra information and factoring it into a suggestion in feels more akin to a personal recommendation than a scalable ‘free at the point of use’ service.
  • What standards will providers be assessed on and what constitutes ‘reasonable grounds’ for a suggestion? Related to the point above, providers will need clarity on whether they will be judged on the information they had, information they asked about and information about subsequent changes – what requirements will there be to review the Targeted Support to check that e.g. contribution levels are appropriate or that the drawdown rates are still sustainable?


Final comments

Closing the advice gap will require thoughtful regulation, industry collaboration, and practical solutions that genuinely work for consumers and for firms. The FCA has laid important groundwork out so far with the concept of Targeted Support, but the road ahead remains complex.

The second consultation paper, including draft rules, is expected by the end of June 2025. It comes at a time when the FCA is actively pursuing a range of objectives: promoting growth, simplifying the rulebook, and moving at pace.

With this in mind, we anticipate that the consultation period may be shorter than normal, particularly given the industry policy sprint. We also expect the FCA to rely heavily on existing outcome-based frameworks, especially the Consumer Duty, when setting expectations for the delivery of Targeted Support.

Watch this space…. be ready to review the draft rules and respond - it might just be one of the biggest changes for retail customers since RDR!

If you’re navigating these changes, evaluating your advice or support model, or simply want to understand what the evolving regulatory landscape means for you or your firm, we’re here to help. Please get in touch with our Financial Services Regulatory team - we’d be happy to support you.

Written by

Caroline Stevenson Web Update2025 2

Caroline Stevenson

Head of Financial Services Regulatory

Financial Services Regulatory

caroline.stevenson@burnesspaull.com +44 (0)131 473 6326

Get in touch
Jamie Gray

Jamie Gray

Partner

Financial Services Regulatory

jamie.gray@burnesspaull.com +44 (0)131 473 6072

Get in touch
Lynsey Whelan

Lynsey Whelan

Director

Financial Services Regulatory

lynsey.whelan@burnesspaull.com +44 (0)131 473 6064

Get in touch

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