The government and the Financial Conduct Authority (FCA) have recently published a policy paper on the Advice Guidance Boundary Review (the Review) which focuses on proposals for closing the advice gap – the difficulty customers face in identifying that they need support and accessing said support in managing their finances. The Chancellor had announced that the joint review would be commenced to examine the regulatory boundary between financial advice and other types of support back in December 2022 as part of the Edinburgh reforms. The aim of the Review is to address the challenges that consumers face in accessing regulated financial advice by proposing solutions to empower a broader range of consumers to proactively manage their finances.

Bim Afolami, the Economic Secretary to the Treasury, states in the foreword that although not every consumer will need full regulated advice, the aim of the policy paper is to "understand the different types of potential support that should be available to them, as well as the means through which they could be delivered." The goal is to create a dynamic and inclusive financial sector where different types of consumers can be supported depending on their circumstances. FCA research has shown that the right amount of support is not currently being provided.

The existing framework

The existing framework is the August 2023 boundary clarification guidance which provides that the relevant perimeter boundary for FCA-authorised persons (i.e. those appropriately authorised to provide regulated investment advice) is not the giving of advice on investments, but the giving of a personal recommendation. Authorised firms which do not hold an advising permission and which provide a personal recommendation will be acting outside the scope of their authorisation and this is taken as contravening a requirement imposed by the FCA, which may lead to disciplinary or civil action. In relation to non-authorised persons, the relevant perimeter remains the broader activity of giving advice on investments, as a matter of consumer protection. If they were to give such advice by way of business, they would likely breach the general prohibition in section 19 of the Financial Services and Markets Act 2000, which is a criminal offence. The guidance offered some practical examples of the types of activity that FCA-authorised firms can provide without crossing into "advice" or a personal recommendation, with the aim of helping firms get closer to the current advice guidance boundary. This includes factual information without expressing an opinion, advice that does not relate to a specific investment or recommendations given to the public, such as posted on the firm's website.

The proposals

Although the boundary clarification guidance has laid the groundwork, the Review will build further on the issues already identified in relation to understanding how the boundary operates and helping consumers invest with confidence. The policy paper contains three initial proposals to bridge the gap between holistic advice and guidance, including:

• Further clarifying the advice-guidance boundary: This would provide FCA-authorised firms with greater certainty that they can give more support to consumers without providing a personal recommendation under the existing framework. Their thinking is that the current interpretation of the regulatory framework is currently overly cautious. The aim is to explore whether further guidance, or simplifying existing guidance, would help firms to provide consumers with greater levels of support by giving them more confidence to operate closer to the boundary. They would also consider rules mandating specific actions where relevant. Although this proposal is not new, it is the easiest to implement as guidance can be very easily consulted. Its content, however, will be reliant on the other two proposals.
• Targeted support: This option, which is the most groundbreaking of all three proposals, would rethink the way that financial support is delivered to consumers by exploring a new framework which enables firms to broaden the support they can provide to consumers. This will allow the support to be offered without explicit charges and based on limited information. It would also enable firms to suggest products or courses of action based on a target market to which the consumer has been identified as belonging i.e. based on characteristics of "people like you" rather than fully individualised support. This will effectively sit between guidance and regulated advice.
• Simplified proposal: In November 2022, the FCA set out a core investment advice consultation paper. It aimed to provide straightforward, one-off investment advice to consumers with less complex needs. However, feedback to the consultation suggested limited support for the specific proposals. This was partly due to firms suggesting there were commercial barriers to implementing the proposed regime. Building on the feedback, the aim is to explore a simplified form of advice that enables firms to support consumers with simpler needs and smaller sums to invest, and to do so in a commercially viable way. This will combine a number of methods including more certainty on suitability and potential for new charging models. This is likely to encourage firms to provide more support to customers, but the commercial viability is still unclear and it may better benefit larger firms.

Both the simplified advice and targeted support proposals rely on a more limited set of personal information compared to full advice. There is a possibility of introducing new rules specifying the minimum information required for firms to comply with the requirement for a reasonable basis in their advice. However, there are concerns that the rules may conflict with the FCA's preference for outcomes-based regulation. Whether the approach will be impactful also depends on whether firms will be inclined to do more under the existing framework, considering that the proposals will not lead to changes to the existing regulatory requirements. Nonetheless, it is arguable that there is still merit in giving firms more certainty.

According to the policy paper, alongside the Review, the FCA plans on leveraging the new Consumer Duty which sets higher standards for financial services customers in providing support to customers while ensuring that customer protection remains the focus. The targeted support proposal is not intended to infringe on consumer rights, rather it is to bolster it through consumer empowerment. The idea is for firms to develop and test out their targeted approach methods in line with their obligations under the Consumer Duty.

The policy paper lists some scenarios which are open to the possibility of exploring whether the FCA can provide greater certainty for firms if necessary. For example, (a) a firm contacting a consumer who holds cash in an ISA warning them of the detriment of inflation, (b) a platform provider contacting an investor who holds most of their portfolio in equity-based funds to highlight the volatility risk and point them towards explanatory materials on investment risk and volatility, amongst other similar scenarios.

In terms of practical application, the proposals may simply provide some firms with confirmation that their existing interpretation of the regulatory requirements is right. However, for others who are still quite cautious and only provide basic advice and generic information, the proposals are intended to give them more confidence in providing more support to their customers.

Next steps

The proposals in the policy paper are high-level proposals at this stage and reflect the government and FCA's early thinking so are very much open to change based on feedback and the outcome of discussions. Feedback is welcomed from a wide range of stakeholders, as well as consumers and consumer groups, to help shape the proposals, including whether there are any proposals that have not yet been considered. The deadline to respond to the questions set out in the policy paper is 28 February 2024.

If you would like to discuss these developments and what they mean for you in more detail, please contact the team.