A new form of investment advice – the FCA’s proposals for targeted support

The FCA has had a long-standing concern that consumers are not getting sufficient help to make investment decisions. The FCA describes this as an “advice gap”, where consumers who could invest in other products and face complex decisions are not being given advice or guidance. This advice gap, in turn, leads to consumers not making the most of their finances or making decisions that are not right for them. The CP seeks to address this issue.

There are many reasons why the advice gap has arisen and why regulated firms are sometimes reluctant to give advice or guidance, including the following:

• The regulatory perimeter is not always clear. The current regime distinguishes between investment advice, which is a regulated activity - and guidance, which is not. Guidance typically involves providing help to a client but without offering views on the merits of a particular product. Firms can be reluctant to provide assistance where they are not clear whether that they are doing amounts to a regulated activity or not.
• The rules relating to investment advice are quite onerous. If the advice amounts to a “personal recommendation” – i.e. it is presented as suitable for the client or is based on a consideration of the client’s circumstances – the firm has to ensure that the advice is suitable under the FCA rules in COB9 and 9A. To do that, the firm has to obtain information from its clients regarding their knowledge and experience, their financial situation (including their ability to bear losses) and their investment objectives (including their risk tolerance) – and then must recommend products that are suitable, taking that information into account. In addition, staff who are engaged in financial advice may need professional qualifications. The operational burden of complying with these obligations is significant for firms.
• Firms perceive that the risks associated with the giving of advice are relatively high. Giving advice involves making a judgment call, which inevitably carries the risk of the adviser not giving the right advice. The risks of giving advice are also perceived to be heightened by the role of the Financial Ombudsman Service (FOS), which has the power to make compensation awards in favour of consumers against regulated firms. In particular:
  • The FOS does not follow precedent and makes decisions on the basis of what is fair and reasonable in the circumstances. There is a perception that the FOS may award compensation (with the benefit of hindsight) even if the firm was in compliance with the FCA rules when giving the advice.
  • The FOS has historically taken a broad view of what amounts to advice. Even if a firm tells its clients that it does not give advice, there are examples of the FOS awarding compensation because the client perceived the firm to have suggested that they should act in a particular way. To avoid this, some firms have ceased providing help to clients that might be perceived as advice – thus leaving clients with less help than they might otherwise have had.
• There is a perception in the market that clients are reluctant to pay for advice. This can lead firms to conclude that the rewards for giving advice do not justify the additional risks.
• There can be structural impediments to providing advice. For some types of investment, the FCA’s adviser charging rules means that clients have to pay directly for advice, and that cross-subsidisation of advice (e.g. through product charges elsewhere in the firm) is not allowed. This has made firms reluctant to assist clients in making decisions, even as a free or value-added service.

These are not new issues. The FCA has recognised the challenges for many years and there have been several previous initiatives to try and address them.

In 2022, the FCA and the Government began a joint review to examine the regulatory boundary between financial advice and other forms of support. This is now known as the Advice Guidance Boundary Review. The new CP (CP25/17) is part of that review.

The new CP proposes a series of changes to the rules relating to advice. In particular, it is proposing an entirely new concept of “targeted support”, which will be a type of advice. There are also new proposals regarding simplified advice and plans to provide further guidance around the boundary between advice and guidance.

The CP is complemented by an HM Treasury Policy Note, published on 15 July 2025, which sets out the proposed changes to legislation that will be required as part of the targeted support initiative.

The main proposal in the CP is the introduction of a concept called “targeted support”. 

Targeted support is a service under which a regulated firm can follow a four step process:

(1)  Situations: Pre-define situations in which to provide targeted support (such as where consumers have a common financial support need or objective)

(2)  Consumer segments:  Pre-define a consumer segment (that is, a group of consumers with common characteristics).

(3)  Ready-made suggestions: Pre-define a “ready-made suggestion” for the consumer segment.

(4)  Delivery: Deliver the ready-made suggestion to a consumer who is aligned to that consumer segment.

If a firm follows this process, it will be able to make suggestions to clients (in effect, a form of financial advice) without having to comply with all the obligations that would have applied if they had been making personal recommendations to those clients.

When targeted support should be considered

The CP gives examples of a number of consumer needs or objectives which the FCA anticipates might be met by targeted support.  These include: consumers under-saving for retirement; consumers drawing down their pension unsustainably; consumers in a position to start investing; consumers who are investing in an expensive fund when a cheaper alternative is available; and consumers choosing between investments and pension products.

The draft FCA rules in the CP include provisions relating to when and how firms should be providing targeted support.  These include requirements that a firm:

• must not provide targeted support in circumstances where it does not have reasonable grounds to consider that the provision of targeted support would achieve a better outcome for the client than if that support were not provided; and
• must not approach a client with a view to the provision of targeted support unless (i) the client initiates the approach; or (ii) the firm has reasonable grounds to consider that the client is in a situation which may be met by targeted support.>

These requirements mean that, in practice, a firm will have to be selective about which of its clients it considers for targeted support.

Consumer segments

“Consumer segments” are groups of consumers in a common situation and, where relevant, sharing common characteristics. Firms will be required to identify the relevant consumer segments as part of any targeted support offering.

In relation to this, the CP says:

• Firms will have to define their consumer segments at a “sufficiently granular level”. However, they should not do in an overly individualised way, otherwise there is a risk that the client will think that they are receiving full advice.
• Firms will be allowed to make reasonable assumptions. They will not be required to communicate the assumptions to clients, but will have to consider whether non-disclosure is appropriate in the light of the assumptions made.
• Firms will have to ensure that, in a particular situation, it is only possible for an individual consumer to align with one consumer segment.
• A consumer segment can be developed without necessarily considering the common characteristics of clients. For example, if a firm identifies that clients are invested in a product where an equivalent cheaper product is available, it will be able to make a consumer segment for those clients without having to consider the clients’ characteristics.
• When firms do consider common characteristics of clients, they will have to consider not only the common characteristics that would align a client with a consumer segment (so-called “including characteristics”), but also common characteristics which that prevent a client from being aligned with a consumer segment (“excluding characteristics”).
• Firms will be required to undertake verification – i.e. to confirm that a particular client is in the common situation and has all of the including characteristics and none of the excluding characteristics of the segment. Where this could mean that certain types of client (e.g. vulnerable customers) are more likely to be excluded from a consumer segment, the firm will have to identify ways to direct the individual to other forms of support.
• Firms will need to consider whether there is any other information about the client of which they are aware, or ought reasonably to be aware, that would indicate that the ready-made suggestion may be unsuitable for the client. If there is, the firm should not make the ready-made suggestion.

Ready-made suggestions

Ready-made suggestions could be suggestions to take action in relation to an existing product or service, or new products. They could also include suggestions to not take an action.

Firms will be required to have a reasonable basis for determining that the ready-made suggestion that it specifies for a consumer segment is suitable for all the individuals in that consumer segment.

Ready-made suggestions could include suggestions to invest in a particular product (subject to certain exceptions, in relation to which see further below). However, when designing a ready-made suggestion, the proposed FCA rules say that a firm will have to be able to demonstrate how, for any product it intends to recommend, it has considered, at least (i) the costs and charges of the product; (ii) whether the target market of the product is consistent with the relevant consumer segment and ready-made suggestion; and (iii) the financial strength of the product provider. Firms will, in effect, have to do due diligence on any products that they recommend through targeted support.

The new rules only apply to a limited subset of products – namely “investments” and pensions – but some of those products will be excluded as well.

Investments in this context would mean securities (including investment funds and structured products) and investment-based life insurance products.

Other types of products, such as mortgages and pure protection insurance (that is, life insurance products without any investment element) are not in scope. The existing advice rules will continue to apply in relation to those other products.

Within the category of investments and pensions, some types of products will also be excluded. The FCA proposes that targeted support cannot be used to recommend:

• a particular annuity or provide a quote relating to an annuity or provide a quote for an annuity that accompanies the targeted support (although targeted support could be used to provide information relating to annuities that is not caught by these restrictions);
• that a client consolidates any of the pension arrangements that they hold;
• restricted mass-market investments (such as unlisted securities and qualifying cryptoassets);
• non-mass market investments (such as units in unregulated funds);
• investments which cannot be marketed to retail clients (such as certain types of derivative); or
• products that are leveraged or which are structured in a way that means the consumer could lose more than they invest.

The CP sets out a draft of the FCA rules that it is proposed will apply to firms providing targeted support.

The main points to note are:

• Suitability and appropriateness: Targeted support will not be subject to the suitability standards in COBS 9 and 9A that currently apply to personal recommendations. However, firms will have to have a reasonable basis for determining that ready-made suggestions are suitable for all consumers in the group, and firms will have to assess suitability by reference to the relevant common characteristics – which means, in effect, that a new kind of suitability test (COBS 9B suitability) will apply for targeted support. The FCA rules requiring an assessment of appropriateness (COBS 10 and 10A) will not apply on the basis that COBS 9B suitability will already have been assessed.
• Client categorisation: A firm providing targeted support will have to treat its client as a retail client, even if the client could have been categorised as a professional client.
• Disclosures: There will be specific disclosure requirements, including for the firm to disclose to the client (i) the fact that they are receiving targeted support rather than comprehensive, individualised advice; (ii) the common characteristics of the consumer segment that have been identified; and (iii) any limitations on the scope of products offered by the firm as part of the targeted support service.
• Charges: A firm will be able to decide whether to charge a client for the provision of targeted support. It will be allowed to provide targeted support free of charge – and in the CP, the FCA says that, in most cases, it expects that targeted support will be provided for free. Any charges for targeted support will have to comply with the FCA’s Consumer Duty requirements regarding price and value.
• Cross-subsidisation: Firms will be allowed to use cross-subsidisation or multi-product pricing strategies to recover the costs of providing a targeted support service – so that, for example, a firm could charge higher prices for related products used by the same clients to compensate the firm for providing the targeted support. However, the FCA says that the cross-subsidisations will have to be reasonably representative of the cost of providing targeted support.
• Testing: Firms will be required to test their targeted support communications and take reasonable steps to ensure consumer understanding.
• Design: When designing a targeted support service, a firm will be a manufacturer of that service – and when it provides the service, it will be a distributor of that service. The firm will therefore have to comply with the FCA’s product governance rules (PROD) for manufacturers and distributors. Firms are also reminded that the Consumer Duty applies to the design and delivery of targeted support.
• Complaints handling and access to the FOS: Complaints relating to targeted support will come within the jurisdiction of the FOS. The FCA says it has been working closely with the FOS to determine how complaints relating to targeted support will be assessed, and the FCA says that, provided that the firm has operated within the targeted support regime and the consumer has not been misled, the FOS will not expect the firm to have conducted the same fact-finding or suitability process as required when giving a personal recommendation. The FCA also says that it will co-operate closely with the FOS going forwards, to try and achieve a complementary and consistent approach.
• Training and qualifications: There will be no qualification requirements for employees involved in targeted support.
• Prudential requirements: Firms that choose to deliver targeted support will need minimum regulatory capital of at least £500,000. This is a baseline, and the FCA is still considering whether additional capital requirements should apply. The baseline amount is higher than that for firms that provide full advice today (although it remains to be seen, once all the other elements of the capital requirements are taken into account, whether the overall position would be materially different for firms providing targeted support).
• Ongoing monitoring: Firms will have to monitor, on an ongoing basis, the outcomes which are generated by their targeted support service, and review their processes (including their ready-made suggestions) both “regularly and with appropriate frequency”.
• Direct marketing: The FCA acknowledges that if clients have opted out of receiving direct marketing, this could act as a barrier to firms who wanted to provide them with unsolicited suggestions as part of targeted support. The FCA (and HMT) say they are working with the Information Commissioner’s Office (ICO) to consider how this can be addressed.
• Appointed representatives: It remains unclear whether appointed representatives will be able to provide targeted support. This would require legislative change, and it is apparent from the HMT Policy Note that a decision has not yet been made.

It is proposed that “targeted support” will be a new, separate category of regulated activity in its own right.  This has a number of consequences for firms.

The creation of a new type of regulated activity will require legislation to be amended, which is a matter for HM Treasury.  However, the Advice Guidance Boundary Review is a joint initiative between HM Treasury and the FCA and the CP and HMT Policy Note are clearly aligned in relation to this point.

Targeted support will be a different regulated activity to the existing regulated activity of “advising on investments” – but the CP says that the activities that it entails would be ones that already come within the definition of “advising on investments”.  The intention is not to extend the regulatory perimeter to cover activities that are not regulated today.

One consequence of targeted support being a new type of regulated activity is that firms will need to apply to the FCA to vary their permission in order to be able to do it – even if they already have permission to give advice on investments. 

The FCA does not appear to be proposing any kind of “grandfathering” arrangement, under which a firm that already has permission to advise on investments would be entitled to a permission to provide targeted support as well.

According to the CP, the FCA will extend its Pre-Application Support Service (PASS) to firms planning to apply for targeted support permissions.  This is indicatively scheduled for October 2025. 

The FCA says that it intends to open its authorisations gateway in March 2026 for variations of permissions – potentially ahead of the new regime coming into effect, to enable the FCA to make a head start on the applications.  Under the current statutory timeframes, the FCA has up to six months to consider an application to vary a permission.

The CP also considers whether any changes are to be made to the boundary between advice and guidance.

Guidance will continue to be an unregulated activity.  This means that firms providing guidance services can continue to do so without FCA authorisation.

The FCA says that it plans to improve its existing guidance on the boundary between (i) the provision of information and guidance, and (ii) the different forms of advice. 

This additional guidance is likely to come into effect after April 2026.

The CP contains separate provisions relating to the concept of “simplified advice”.

Simplified advice is described in the CP as the recommendation of a particular product or course of action assessed as suitable for an individual consumer, taking account of essential information relevant to a single need.

This concept has been the subject of previous FCA initiatives and consultations.  The FCA believes that firms can already provide simplified advice (based on the current scope of its rules on advice and on guidance that the FCA issued in 2017 around “streamlined advice”).  However, the FCA acknowledges that its previous initiatives have not led to the widespread adoption of simplified advice.  It says that this is, in part, due to a lack of certainty on the part of firms that advice can be provided without taking into account all of a client’s holistic needs and circumstances.

The FCA wants simplified advice to be able to complement targeted support where a client has straightforward needs, and provide a stepping stone to more holistic (full) advice where appropriate.  In the CP, therefore, the FCA says that it plans to consult on simplifying its advice rules and guidance to create a clearer distinction between simplified advice and more holistic advice. 

The FCA also says that it will work closely with the FOS to make sure the FOS's interpretation of the FCA rules, and its approach, reflects the more limited considerations possible when providing simplified advice. 

The FCA says it intends to issue a separate consultation paper on simplified advice in January 2026.  It is likely that any new rules will come into effect later that year.

Even at this early stage, it is possible to see a number of potential benefits and challenges associated with the new proposals.

The new proposals are likely to be beneficial to firms in a number of respects:

• They introduce a new type of service which should be less operationally challenging than providing full advice.
• They reduce previous concerns that firms had about how advisory services must be paid for – in particular, by saying that firms can provide targeted support for free and that some cross-subsidisation will be allowed.
• The renewed focus on the simplified advice initiative should make firms more confident about offering only limited forms of advice.

However, there are still likely to be challenges for firms that wish to operate in this space:

• Even under the proposed approach, firms will be subject to significant operational obligations – including, in particular, the need for firms to ensure that ready-made suggestions are suitable for all the individuals in a consumer segment, and to have the right information about those individuals to make that assessment. Firms might look at the FCA’s expectations and conclude that there is not much difference between what they will have to do to support targeted advice and what they have to do under the current rules for full advice. Nevertheless, the possibility of having a more streamlined process may be attractive to firms – particularly those who are already set up to provide full advice.
• The FCA’s comment in the CP that it expects most targeted support to be offered for free gives a clue as to how remunerative the new service is likely to be for firms. While targeted support may not be a significant driver of revenue in itself, the new service may help drive revenues for other parts of the business of firms who can also provide the other products that the client might be directed towards.
• The proposals show an awareness of the part of the FCA about some of the obstacles that firms perceive in relation to the giving of advice. Additional guidance on the regulatory perimeter is likely to be helpful. The CP also alludes in several places to the need to make sure that the FOS is properly aligned with the FCA in relation to the expectations. Modernising the redress system is an area of particular regulatory focus at the moment (see CP25/22) and the question of how the FOS approaches advice could affect the success of the targeted support initiative.
• The need for firms to obtain a new permission to provide targeted support is likely to be unhelpful, in that firms who want to provide the new service will have to go through a variation of permission process, with all of the additional work that that entails.

We will have to wait and see whether this initiative is more successful than some of its predecessors, but the willingness of the FCA to try and find a creative way to fill the advice gap is likely to be regarded positively.