The Financial Conduct Authority's (FCA) targeted support consultation has closed with broad industry backing, but respondents have warned that the reforms risk falling short without greater clarity, regulatory alignment, and a “safe harbour” to give firms confidence to engage.

Last month, the FCAconfirmed its intention to take forward a proposal for targeted support following a joint review on the regulatory boundary between financial advice and guidance.

Whilst the initial industry reaction was positive, industry responses have since revealed a number of calls for the FCA to refine the rules to ensure the initiative delivers on its promise.

In particular, respondents stressed that targeted support must bridge the gap between guidance and holistic advice without undermining the latter.

Aegon pensions director, Steven Cameron, warned that the success of targeted support mustn’t be judged by how widely it’s used – but on whether "it’s truly complementing, not cannibalising, the advice market."

“While targeted support could help many non-advised customers with key financial decisions, it will never replace the personalised recommendations of holistic advice,” he added.

Quilter CEO, Steven Levin, agreed that targeted support “has the potential to be a transformational shift,” but stressed that it is "vital" that the framework is built on clear rules, workable processes, and a regulatory environment that provides both consumers and firms with the confidence to engage.

Liability was also a concern for both, as Cameron said the Financial Ombudsman Service (FOS) must provide reassurance that targeted support “won’t be assessed against the same standards as full advice.”

Levin went further, arguing that a “genuine safe harbour” was needed to avoid “the risk of hindsight regulation”, which could otherwise “stifle innovation, limit access and deter firms from engaging fully."

The Investing and Saving Alliance (TISA) warned that current privacy rules could also sharply restrict the initiative’s reach.

Under the Privacy and Electronic Communications Regulations (PECR), firms may only be able to contact a fraction of their customers.

TISA head of policy, Sophie Legrand-Green, suggested that unless PECR is amended, three out of four consumers could remain out of reach.

“Our recommendations are pragmatic,” she continued, arguing that the FCA should enable 'opt-out outreach' so firms can help those who aren’t currently engaging and set clear guardrails so staff can deliver pre-defined support without straying into advice.

TISA also cautioned that the FCA’s approach to additional information volunteered by consumers could discourage firms from providing targeted support via phone or branch, “thereby excluding digitally vulnerable consumers."

In addition to this, several organisations questioned the FCA’s decision to exclude certain use cases.

Cameron described it as “disappointing” that pension consolidation is currently ruled out, while the Society of Pension Professionals (SPP) warned: “The proposals to exclude targeted support in relation to consolidation also appear to be inconsistent with wider policy objectives to promote consolidation and encourage members to seek better value for money.”

There were also concerns about trustees being cut out. Sackers partner, Jacqui Reid, stated: “With targeted support positioned as a new regulated activity, as things stand, it is unlikely that trustees of master trusts and own trust occupational schemes will be able to deliver this directly, as we had hoped they would.

"We encourage the FCA to work with the industry to find a way to enable trustees to be able to offer targeted support or its equivalent directly to all their members,” she said.

More broadly, Association of British Insurers (ABI) long-term savings policy manager, George Ritchie, emphasised the need for proportionate rules and clear definitions to give firms confidence.

“To ensure that targeted support becomes the mass-market intervention envisaged by the FCA, changes are needed to tackle remaining regulatory uncertainty around ongoing monitoring of outcomes, treatment of additional customer information, and customer segmentation."

Richie added that clarity was “key” to give firms the necessary confidence to start offering this "novel" form of support.

The SPP similarly suggested that “better position” would be a clearer and more realistic benchmark than “better outcome”, helping avoid confusion with the FCA’s Consumer Duty.

Next steps

Despite several concerns, the industry remained broadly supportive of the proposals, as Cameron said targeted support could “potentially help millions of non-advised workplace pension auto-enrollees”, while Levin described it as “a major step forward” if underpinned by safe harbour protections and proportionate regulation.

“While no single solution will entirely close the advice gap, targeted support is a major leap forward,” stressed Ritchie.

The FCA is expected to publish a policy statement with the final rules in December, with a consultation on simplified advice to follow in the New Year as part of the Advice Guidance Boundary Review.

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