FCA Announces Major Shift in UK Financial Advice Market to Boost Accessibility

The Financial Conduct Authority (FCA) has announced significant changes to the UK’s financial advice market, aiming to provide more accessible and affordable investment advice to millions of British savers. The new rules will allow companies to offer generic recommendations to groups of consumers without the need to comply with all the stringent regulations associated with personalized advice. This move is part of a broader effort to address the "advice gap" that has left many people unable to afford financial advice, despite needing assistance with their investments.

According to the FCA, this change represents a "once-in-a-generation" shift in the financial advice landscape. The regulator aims to help more than half of British savers who have expressed a need for further assistance in investing their money. The new regime will enable companies to suggest to groups of people with similar characteristics that they consider investing some of their cash in shares to earn better returns over time. This is a significant departure from the current system, which has made financial advice more expensive and less accessible to the general public.

The FCA’s Retail Distribution Review, implemented over a decade ago, was intended to improve the quality of financial advice. However, it also increased the cost of such services, leaving many people unable to afford them. The new rules are designed to remedy this situation by providing targeted support to those who need it most. The regulator estimates that between 13.5 million and 30.6 million people could benefit from this focused assistance, including 7 million adults who have more than £10,000 in cash savings but no investments.

The FCA plans to consult on developing rules for this new activity of targeted support by December. This will allow companies to make generic offers to groups of consumers with similar characteristics, without being subject to the burdensome requirements of providing a "personal recommendation." This includes undertaking a fully detailed suitability assessment, which has been a significant barrier to providing affordable financial advice.

In addition to targeted support, the FCA also plans to introduce a second category called "simplified advice." Under this category, firms will be able to make a suggestion on a financial product to a customer based on a short document detailing their "essential relevant facts," without having to conduct a full suitability assessment. This will further streamline the process and make financial advice more accessible to a wider range of consumers.

Several prominent figures have acknowledged the importance of the FCA’s proposal. Dan Olley, chief executive of Hargreaves Lansdown, described the proposals as genuinely transformational in cementing a healthy retail investment culture in the UK. He highlighted that there are important moments in life when people find themselves in the advice gap, needing more help than the rules currently permit. James Daley, leader of the consumer group Fairer Finance, also welcomed the changes, emphasizing the need for strong consumer protections to ensure that customers are not exploited. Jon Cleborne, leader of Vanguard in Europe, noted that the proposals are important for helping more people enjoy the benefits of long-term investing and reach their financial goals. Verona Kenny, chief distribution officer at Aberdeen Adviser, reported that over 40% of individuals acknowledged that they have done little to prepare financially for retirement, making the new changes a timely opportunity to address this issue.