James Jones-Tinsley: Aiming for an advice-guidance sweetspot

As Nikhil Rathi is reappointed as CEO of the Financial Conduct Authority (FCA) for another five years, the FCA has set out its strategic direction for 2025/26, with important implications for financial advisers. The FCA’s annual funding requirement (AFR) will increase by 2.5% to £783.5 million and advisers will see direct impacts in fees, regulation, and industry support. This announcement follows the launch – just before Christmas last year – of a consultation that aims to bridge the gap between general financial guidance and regulated financial advice, with an initial focus on pensions. The Consultation Paper launched the phrase ‘targeted pensions support’, with a regulatory aim of building on another phrase that has been around for some years now; namely, the ‘advice/guidance boundary review’. Arguably, the move comes as many individuals struggle to make informed retirement decisions, often lacking access to professional financial advice. The FCA wants to introduce a framework for structured, accessible support that can improve financial outcomes, while maintaining regulatory safeguards; essentially aiming to create a ‘sweet spot’ between guidance and advice that has eluded our industry for so long. Ten years after the ‘Pension Freedoms’ reforms, individuals face a large array of retirement income choices, but without adequate support, irrevocable financial mistakes can occur. Research highlights that many pension holders lack a fundamental knowledge about retirement products, with 36% unaware of flexi-access drawdown and 32% unfamiliar with annuities. With millions of auto-enrolled workers set to retire during the coming years, the advice gap is widening. The current lack of accessible advice makes it difficult for individuals to make informed pension decisions. A recent case study demonstrates this point: a seasoned pensions journalist found the annuity purchase process both complex and daunting, underscoring the challenges faced by everyday consumers. The FCA's 2024 ‘Financial Lives Survey’ found that only 9% of UK adults sought regulated advice in the preceding year. Most rely on informal sources, including relatives and friends, which may be unreliable. To address this, the FCA and the government initiated the ‘advice-guidance boundary review’, exploring ways to make financial support more accessible. The pre-Christmas consultation (numbered CP24/27) represents an effort to structure targeted support effectively. To achieve this, the FCA’s proposed framework consists of three core elements: • Firstly, ‘Pre-Defined Scenarios’: Here, firms identify situations where additional support could improve outcomes. Examples include excessive cash holdings in pensions, withdrawing pension funds too rapidly, and inadequate contributions. These interventions aim to improve long-term financial security, but without being too generic. • Secondly, ‘Consumer Segmentation’: Firms can categorise policyholders, based on shared characteristics, to deliver more tailored guidance. Therefore, those nearing retirement with insufficient savings would receive different types of support than young employees who were under-contributing. Although this approach provides structure, it may be too simplistic and fail to capture the idiosyncrasies of individual financial needs. • Thirdly, ‘Structured Solutions’: These would provide a standard approach, such as nudging consumers to increase contributions, providing investment pathway portfolio models, or alerting retirees to drawdown risks. Whilst cost-effective, such solutions may lack personalisation, leading to unintentional poor outcomes for individuals. In essence, the introduction of targeted support could provide invaluable guidance to those who cannot afford regulated financial advice. Larger advisory firms and pension providers could play a role in delivering this support at a lower cost, through economies of scale. However, three potential risks must firstly be addressed: • Firstly, the risk of cross-selling: firms may use targeted support to promote their products, leading to potential conflicts of interest. • Secondly, over-regulation vs. consumer empowerment: while consumer protection is critical, excessive regulation could hinder proactive support. • Thirdly, enabling meaningful engagement: firms must balance the provision of useful support, whilst avoiding excessive notifications that could both frustrate and disengage individuals. Having set out the need for, and the aims and objectives of, delivering targeted support to non-advised individuals, the obvious next question is - who is going to pay for its delivery? Within its strategic direction for 2025/26, the FCA will be investing £3.7 million in a joint initiative with the government to explore how firms can provide more targeted investment and pensions support to consumers, without crossing the regulatory line into full advice. This could open new ways for advisers to engage clients with simplified or hybrid advice models. The various segments of the regulated financial services industry will be expected to play their part in funding the proposed costs of delivering targeted support. For advisers, a modest increase in fees, coupled with proposed regulatory shifts, could make it easier to offer more tailored services to clients in the longer term. James Jones-Tinsley is a technical specialist at Barnett Waddingham on SSAS and SIPPs practice areas. He also presents to clients, advisers and other professionals on pension matters, liaising with the media on changes to pension legislation. James D Jones-Tinsley FPMI APFS, This email address is being protected from spambots. You need JavaScript enabled to view it.

James Jones-Tinsley: Aiming for an advice-guidance sweetspot

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