The Financial Conduct Authority is proposing to establish a standard which takes a “proportionate approach” to gathering limited customer information.
As part of its advice guidance boundary review, published today (December 8), the FCA said the new standard will help to reduce the time needed for collecting customer information and therefore bring down the overall cost for firms of providing the service.
Targeted support is a non-advised option proposed by the FCA which allows authorised firms, such as product providers, to guide their customers towards certain products based on what other people 'like them' would find suitable.
As such the option would operate under different suitability requirements than simplified or holistic advice, allowing firms to collect limited personal information about a customer and their circumstances to help them make an informed decision.
Crucially, it will be required to adhere to Consumer Duty rules and would operate on a target market level, rather than individual level, to make suggestions based on ‘people like you’.
Firms will be required to assess that their targeted support provides consumers with a better outcome than they would otherwise have had.
The FCA said: “Advice, underpinned by the standard of suitability, can often be perceived by firms to require directing a customer to a specific outcome for ‘you’ (and you specifically) on the basis of an extensive fact-find fulfilled by a wide range of information.
“But we want targeted support to be underpinned by a standard which supports a customer to a specific outcome for ‘people like you’ on the basis of a limited number of datapoints – so in essence identifying products or other support designed for ‘people with the same high-level needs, characteristics and objectives as you’.”
The new approach could also offer targeted support without explicit charges, the FCA said, such as by cross-subsidising other services.
However, firms would be required to disclose clearly how a consumer is paying for the service through other charges.
Regulatory requirements
The FCA said the service would need to comply with relevant consumer duty requirements.
At a high-level, the minimum requirements for the new standard would be:
- Firms to ensure that the support they provide is designed to meet the needs, characteristics and objectives of an identified target market and that they take reasonable steps to ensure that the support they provide is only directed to people with similar needs, characteristics and objectives as those in the identified target market
- Firms would also need to determine the extent of the information to be collected from their client to deliver targeted support.
In line with the consumer duty, firms will need to avoid causing foreseeable harm, act in good faith and enable and support customers to pursue their financial objectives.
The FCA said the customer should also understand the outcome that the suggestion is intended, but not guaranteed, to achieve, and the risks it carries – such as in relation to a customer’s return on investment and risk of capital loss.
“Targeted support would be an innovative type of support, sitting between both information or guidance and simplified or holistic advice,” the FCA said.
“It would allow a firm to identify whether a consumer falls within a target market and ensure that the suggestion made to the consumer aligns with the needs, characteristics and objectives of that target market, while acknowledging that the consumer may have individual needs that have not been identified.”
The FCA explained this could be akin to a supported sales channel – both in terms of how firms would deliver it and how the consumer would perceive it.
Product governance
The new standard would need to incorporate “robust product governance” requirements to ensure firms, when providing targeted support, make appropriate suggestions tailored to a target market.
A concept of designing for a ‘target market’ already exists in the FCA’s Prod sourcebook and is embedded across the rules within the consumer duty.
“We are keen to build on this established concept so that, when a firm makes a suggestion, it meets the needs, characteristics and objectives of the identified target market, while acknowledging that the consumer may have individual needs that have not been identified,” the FCA said.
In particular, this could build on the ‘target market’ product governance rules set out in the investment pathways and default investment options in non-workplace pensions.
For example, the FCA said Prod sets out how manufacturers must review their pathway investments at least annually to ensure that the investments remain consistent with the needs, characteristics and objectives of their identified target market, and are being distributed to their target market.
“A firm must not distribute a pathway investment unless it is compatible with the needs, characteristics and objectives of those retail customers that fall within the pathway investment’s target market,” it said.
“We are keen for respondents’ input to calibrate this new standard to ensure that, in delivering targeted support, firms are serving consumers’ interests.”
They will be required to serve consumers through collecting the right information from the right sources, using that information to assess what they should suggest to a consumer in the right way and delivering the support in the right circumstances or scenarios.
“It would be crucial for consumers to make a clear positive choice to receive targeted support,” it said.
“They would need to understand what this new type of support is, and especially how it is separate and distinct from simplified and holistic advice.
“Consumers would need to understand that – unlike a personal recommendation they would expect to receive from a regulated financial adviser – the specific product(s) suggested through a targeted support service would be for ‘people like you’ instead of being a recommendation on an individually personalised level.”
The FCA said it recognises the need for this new type of support to be commercially viable for firms but added it was important that it protects consumers from harm, in line with the consumer duty requirements.
sonia.rach@ft.com
What's your view?
Have your say in the comments section below or email us: ftadviser.newsdesk@ft.com
