FCA targeted support proposals ‘don’t favour particular size of firm’

Davidson’s comments were made in response to recent proposals by the FCA for reforming the advice-guidance boundary.

This includes a new approach called targeted support, allowing firms to provide support tailored to groups of people in similar circumstances underpinned by the concept of generic suitability rather than individual suitability.

To facilitate this, the FCA has said it is open to allowing firms to offer this service for free through cross-subsidy, which had been banned by the RDR, as long as appropriate protections are in place.

However, due to customer data and the ability for firms to recover costs by cross subsidising, the FCA had stated that this may give an advantage to larger firms.

In response, Davidson explained that a small digitally-focused firm may be able to more nimbly set up a proposition around this type of generic support.

Although she did acknowledge that “clearly if you have a large customer base you are not building from scratch”.

She added that good governance will be “absolutely essential” to avoid a move back towards marketing-driven best buy lists or “Spotify-style recommendations” that are not underpinned by solid research and outcome-based processes.

Reaction to proposals

Davidson also said the proposals show the regulator is willing to be “pragmatic” in trying to ensure more people get more help with critical financial decisions. 

“We agree there should be greater scope for firms to utilise data on how the majority of people use certain financial products, and we welcome the FCA’s commitment to explore the idea of ‘people like you’ nudges that could help consumers avoid making poor choices,” she said.

Davidson described the proposals as “bold” as they mean firms could use limited personal information about a customer to identify whether they fall within a target market.

Firms could subsequently make a suggestion to the customer that aligns with the needs, characteristics and objectives of that customer segment.

She added that, “crucially”, it is not personalised to the individual and, therefore, there is “less risk” of blurring the advice/guidance boundary, but clear disclosures will be critical to ensure consumers understand exactly the kind of help they are receiving. 

“We can see how this could empower firms to better meet the foreseeable harm rules under the consumer duty by providing courses of action for a range of decisions that firms recognise as potential causes of sub-standard outcomes.”

Caution

However, Davidson cautioned that, while removing the standard of suitability from targeted support makes it more “feasible to deliver”, it also risks decoupling a product recommendation from the suitability rules.

For this reason, she advised that it should never be presented as a “solid recommendation” that is ‘personal’ to the consumer. 

“What it could allow is customer journeys, particularly digitally, that build on initiatives like Investment Pathways to guide consumers towards suggested product sets,” she said.

“A shortlist of products, without being overwhelming for the consumer, would seem more appropriate and reduce risk of mis-selling.”

Davidson also stated that the suggestion of paying via a cross-subsidy to charge for targeted support is something that Quilter will explore in more detail.

tom.dunstan@ft.com

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