The FCA’s new targeted support regime went live at the start of April, allowing financial advisers, investment firms, platforms and insurance groups with the requisite authorisation now to provide suggestions designed for groups of consumers with common characteristics – without the regulatory rigmarole.
While targeted support should help narrow the advice gap, a question remains over its impact for the advice profession. Will it eat advisers’ lunch – or will it be a new opportunity, creating a wave of younger clients with sufficient assets to afford full advice in the longer term?
The regime appeared to have got off to a slow start, with a Freedom of Information Act request from Sicsic Advisory revealing just 19 firms using the FCA’s pre-application support service in January. Applications have accelerated since, however, with Vanguard the latest company to say it has received approval to deliver targeted support. Other high-profile names launching targeted support options include L&G, Quilter and Royal London.
Research by the Personal Investment Management & Financial Advice Association has found most advice firms (63%) do not currently plan to offer targeted support yet there is clear backing for the initiative and its role in improving consumer outcomes. The same study found approaching half (45%) of advice firms have no intention of offering simplified advice services but over a third (36%) were awaiting further details before making a decision.
‘Crucial bridge’
So could targeted support prove financial advice’s ‘missing link’? Quilter is one of the firms that sees real grounds for optimism. “Targeted support has the potential to shift the dial for consumers who sit outside the reach of full advice,” says the firm’s chief executive Steven Levin. “We see targeted support as a crucial bridge to financial advice as customers’ needs evolve over time. Having that flexibility to enable that transition ensures we can support them through every stage of their financial lives.”
Plenty of advisers are expecting a boost to their business meanwhile. According to new polling from Opinium, for example, almost half of IFAs (46%) believe access to targeted pension and investment support is likely to make more people seek independent financial advice. Only a fifth (19%) of IFAs believe targeted support would make people less likely to seek independent financial advice.
Chris Jones, financial services director at Dynamic Planner, believes the new regime has the potential to affect many advisers. Asked if advisers could lose clients to these models, he says: “I would hesitate to say an absolute ‘no’, but I tend to see targeted support as a pretty unmitigated opportunity for advisers.
“For those of us who have been in the industry a while and remember the large bank assurance services, we saw clients use those, became wealthier and often then migrate to independent advisers who could provide a much greater coverage of the market and a much greater service. I can see that happening again.”
‘Softly, softly’
There are clearly some potential advantages for advisers in introducing targeted support options into their business. It may, for example, allow a more ‘softly, softly’ approach to early client conversations, rather than a straight leap to full-factfind mode that clients may find alarming or intrusive. In turn, it should allow for a gentler approach to establishing a relationship and greater flexibility in the way clients are brought onboard.
Also – given many advisers are still struggling with an ageing client base – it may be a useful tool to attract younger clients. In a survey of 2,000 consumers, for example, KPMG found more than two-fifths (44%) of respondents confident they will use targeted support if it becomes available to them.
Furthermore, the research suggests it is often younger people who are more open to the idea, with almost three-fifths (58%) of 25-34-year-olds saying they are likely to use targeted support and a similar proportion (56%) of 35-44-year-olds feelings the same way.
At the same time, while almost three-quarters (72%) of those surveyed overall said they would trust FCA-regulated “targeted support”, that trust drops by age – only 55% of those aged 55 and over said would do so. And while 72% of retail investors say they would trust targeted support from their bank or investment provider, this breaks down into 89% of 18-34-year-olds versus 55% of those aged 55 and over.
‘Ready-made suggestions’
For advisers contemplating offering targeted support options, the starting point is identifying segments of consumers with shared financial needs. That means, says the FCA, “leveraging existing consumer data and making reasonable assumptions without crossing into individualised advice.” Any moves will need to align with existing Consumer Duty rules within an advice firm.
Ideas suggested by the regulator include the possibility of targeted support being used to suggest alternative contribution rates for those under-saving, to help choose a specific drawdown product or to encourage customers holding excess cash to consider shifting into a stocks and shares ISA.
Independent consultant Simon Farrant, who was previously head of business development at Fidelity, offers this example: “A D2C platform might notice it has a number of drawdown clients taking very high withdrawals incompatible with the sustainability of pension income. They might then define one or more groups or consumer segments.
“The regime works by providing those people with ready-made suggestion, which could be a product or recommendation.” A key point is that the group of clients must be sufficiently granular to establish suitability – but they cannot include a full factfind. If a consumer fits into the group, they receive the suggestion.
“It is a permission,” is how Dynamic Planner’s Jones frames the new regime, continuing: “A firm will be able to make mass recommendations to groups of people with a much lower bar for suitability than we are used to in the advice industry. It will be a lot more specific.”
“We see targeted support as a crucial bridge to financial advice as customers’ needs evolve over time.
If firms are going to comply, they will need to make serious efforts to ensure people do not think they have had advice.”
Farrant, meanwhile, is clear this is not ‘advice light’. “The experience will not be like advice at all,” he explains. “If firms are going to comply, they will need to make serious efforts to ensure people do not think they have had advice.” And it is not just larger firms that can participate, he says, adding: “While there is a capital requirement of £500,000 associated with the permission, beyond that, there is nothing to stop a firm being successful at targeted support. Also, it is not only digital – it can be provided face-to-face.”
For Jones, the adoption of targeted support will very much depend on how it is managed. “If providers are just putting out sales messages on billboards at Waterloo, it may not have much impact,” he observes. “It needs a level of understanding and empathy.”
It is also worth noting there are areas targeted advice cannot touch. The regime specifically excludes pension consolidation, pension transfers and high-risk investments and neither can it be used to recommend specific annuities. To put it another way, there appears to be relatively little risk that targeted support will cannibalise existing advice services.
Targeted support brings potential new flexibility to advice models but it will take time to design the associated propositions. Ultimately, while advisers’ existing lunch seems safe enough, if the regime is successful in helping build long-term wealth for younger generations, this new stream of business may end up putting other meals on the table.
