Millions of savers, pensioners and investors will soon be able to access free ‘targeted support’, a new form of financial guidance, to help them get better returns on their money.
The ‘once-in-a-generation’ reforms announced by the Financial Conduct Authority (FCA) will allow authorised firms to make suggestions to groups of consumers with common characteristics. The new rules are expected to come into effect early next year.
Read on to find out more about the proposed changes, what it could mean for your finances and where else you can go for financial advice and guidance.
What will ‘targeted support’ look like?
The proposal would allow firms to make suggestions to groups of consumers who have similar financial circumstances. These could include people who may be currently drawing down on their pension unsustainably, not saving enough for retirement or who have excess cash sitting in a current account.
The finance watchdog has outlined a number of examples where targeted support could be used, including:
- Consumers under-saving for retirement: Currently firms can warn a consumer that they may be under-saving for retirement. Under targeted support, a firm could suggest an alternative pension contribution rate.
- Consumers who are investing in an expensive fund when a cheaper alternative is available: Currently firms can inform consumers that there are alternative products with lower charges. Under targeted support, a firm could suggest a particular fund which would offer better value.
- Consumers drawing down their pension unsustainably: Currently firms can warn a consumer that they may be drawing down their pension unsustainably. Under targeted support, a firm could suggest an alternative drawdown rate.
‘We want to help consumers navigate their financial lives and plan for the long term,’ said Sarah Pritchard, deputy chief executive of the FCA. ‘Some of the most difficult financial decisions we face are how to save, invest and prepare for a comfortable retirement.
‘These once-in-a-generation reforms will help people navigate their financial lives and give them greater confidence to invest. This is a win-win for consumers and firms alike.’
- Find out more: how to find a financial adviser
Why is the FCA introducing new rules?
The new reforms aim to tackle the serious advice gap that exists in the UK – just 9% of adults received financial advice about their pensions or investments in the previous 12 months, according to the FCA’s latest Financial Lives survey.
Often this is because of the cost involved, with one in five surveyed in The Lang Cat Advice Gap 2024 report saying financial advice would need to cost less for them to consider paying for it.
The average cost of advice over five years for an investment worth £250,000 is £13,375 in Wales, £15,995 in the North of England and Scotland, and £16,250 in the rest of England, according to VouchedFor. This includes investment, ongoing support, and planning.
Financial advice can be costly for several reasons. Many advisers charge fees based on how much you invest, so clients with smaller pots bring in less income for the same amount of work. This shift happened after commission payments were banned in 2012, meaning advisers now rely on client fees to cover their costs and meet regulatory requirements.
Investors who do seek out guidance are also increasingly turning to social media and other unregulated sources – 40% of UK investors have used social media to inform their financial decisions within the last two years according to Fidelity International.
Low-cost and free services from regulated firms do already exist under current rules. However, these usually offer guidance rather than personal financial advice.
Guidance provides general information to help you make your own decisions, but it doesn’t tell you what you should do. Advice, on the other hand, is a personal recommendation based on your circumstances.
- Find out more: how much financial advice costs
Are there any risks?
Earlier this year, experts told Which? that while targeted support could help people make better decisions, it also carries risks.
They warned it might steer customers towards products that aren’t the best option for them, especially if firms focus on promoting their own offerings.
There were also concerns about whether people would have the same protections as they would with full financial advice if things went wrong.
The FCA says its Consumer Duty rules require firms to monitor whether their actions cause harm and take steps to address this, including through compensation where appropriate, to reduce the risk of mis-selling.
- Find out more: are your investments protected?
Where else can you go for low-cost advice or guidance?
If you’re unsure where to turn for help with your finances, there are a range of services that can offer guidance or advice depending on your needs.
Money and Pension Service
The government-backed Money and Pensions Service runs two free guidance services. Pension Wise is available to anyone over the age of 50 with a defined contribution pension pot, and is an hour-long appointment over the phone on 0800 138 3944, online or in person through Citizens Advice.
MoneyHelper can give guidance online or over the phone at 0800 138 7777 about any money-related topic.
Debt charities
If the type of guidance you need is related to debt, charities like Citizens Advice or StepChange can offer free expert help.
Citizens Advice runs a debt helpline at 0800 240 2240, as well as an online chat and in-person support in its local branches.
StepChange also has a debt helpline at 0800 138 1111 and offers an online service to work out your budget and give debt advice.
Investment platforms and robo-advisers
Some investment platforms offer coaching and advice services, but advice will be restricted to what’s on the platforms. Some coaching sessions carry a one-off charge, while others are free to users.
Robo-advisers are a halfway option between ‘do-it-yourself’ investing and financial advice. They take into account your goals and risk tolerance, investing your money accordingly, but without any human interaction.
1-to-1 guidance from Which?’s experts
For impartial financial guidance, Which? Money members can also book a 1-to-1 phone appointment. The cost of the appointment is included in a Which? Money membership.
With more than 350 years of experience in financial services between them, our team of experts can provide information on a range of personal finance topics, including investment options but also insurance, care costs, tax, savings and seeking reimbursement after a scam.
