FCA consultation on simplifying the rules for investment advice

The Consultation Paper (CP) is titled “Simplifying the Pensions and Advice Rules”, and the main proposals are as follows:

Simplifying the advice rules

The FCA proposes to:

• Consolidate the existing chapters of the FCA that deal with suitability into a single unified chapter.  There are currently separate chapters for MiFID and non-MiFID business, with slightly different requirements.  In producing the unified rules, the FCA proposes to and largely remove the distinction between MiFID and non-MiFID business and between insurance-based investment products and other life policies.  The CP itself contains the text of the draft unified chapter.
• Amend the suitability test:
  • Going forwards, suitability assessments should be based on “sufficient information to reasonably demonstrate the suitability of a recommendation (instead of the current test of “necessary” information )  This is aimed at helping firms use more simplified forms of advice.  Firms’ approaches should be proportionate to the nature and scope of the service and the complexity of any recommendation.  The CP contains draft Handbook guidance which is intended to emphasise the concept of proportionality.
  • Firms should take a proportionate approach to considering a client’s knowledge and experience.  Firms will not be required to assess a customer’s knowledge and experience where this would deliver no discernible benefit. 
  • Firms will be required to provide information that supports a client’s understanding of a service or product recommended.  The FCA will make clear that where an assessment of knowledge is required, firms can educate and increase a client’s knowledge as part of that process.
  • In connection with assessing the suitability of a recommendation, the FCA will simplify the language about considering the risk that a customer is willing to take (using the term “attitude to risk” instead of other similar terms that the rules currently contain).  The rules will also make clear that assessing attitude to risk is separate to the need to assess the client’s ability to bear loss. 
• Change the requirements for suitability reports:
  • Suitability reports will only be required to include useful, relevant information for clients.  The rules will allow for layering of disclosure requirements and risk warnings.
  • Some requirements of suitability reports will be relaxed – so that suitability reports relating to insurance will no longer need to explain how the recommendation best meets the client’s demands and needs (but it will still need to explain why it is suitable).  Other specific requirements will be removed on the basis that the Consumer Duty covers the position adequately.
  • Suitability reports will be required whenever a recommendation is not to do something.

Ongoing advice

Under the current rules, firms can make a charge for ongoing advice where they provide that as a service to their clients.  There are rules about the nature of the service and how frequently the ongoing advice must be provided.

Under the CP, the FCA proposes to:

• Replace the annual suitability requirement with a more flexible obligation to provide “periodic” suitability reviews – which could be less frequent than annually.
• Clarify its rules to make clear that firms may charge for ongoing related services linked to an earlier personal recommendation.
• Introduce new Handbook guidance to set out its expectations as to how firms should fulfil their existing Consumer Duty obligations when dealing with clients who are disengaged from ongoing advice services.

Issues for discussion

The CP also contains two discussion chapters, where the FCA is not making proposals but is inviting feedback. The issues for discussion are:

• whether the few remaining situations in which trail commission can be paid should be continued; and
• how the rules on suitability treat professional clients.  The current rules allow firms to treat professional clients differently (e.g. allowing firms to make assumptions about their clients, thus reducing the amount of information they need to seek from clients), but the rules apply inconsistently across different product types.  The FCA says it is attracted to largely replicating the proportionate approach that it intends to apply to retail customers, but is open to suggestions on this point.

The consultation closes on 22 May 2026 and the FCA says that it intends to publish a policy statement in Q4 2026.

Authored by Dominic Hill.