The Financial Conduct Authority has said it will expect consumes to take reasonable responsibility for the financial decisions they make.
But it added firms must treat consumers fairly and should exercise extra care when they are vulnerable.
The confirmation of the regulator's stance is in a document published today (6 November) which sets out its approach to consumers.
It is the first in a series of documents which the FCA committed to publish when it launched its Mission last year.
The FCA has said it wants to see markets where high-quality, good value products and services which meet consumers’ needs are available, and where consumers can buy these in a way which is clear, fair and not misleading.
It has also said it wants to see the needs of vulnerable consumers taken into account.
Addressing the advice market in particular, the FCA said it expects consumers to receive suitable advice which takes account of their individual circumstances.
Firms should frame decisions for customers based on real world consumer behaviour and not exploit their biases, it added.
Andrew Bailey, chief executive of the FCA, said: “Our Mission explained that we act where we can add the greatest public value and have the greatest impact.
“Today’s paper focuses on how we can deliver better consumer outcomes through our interventions and tackle the areas of greatest harm.
“There are limits to what we can achieve on our own. We will work with others – industry, government and other agencies – to address complex issues like vulnerability and financial exclusion.”
The FCA has said its stance, and what it expects of firms, is that consumers are treated as they are in real life, rather than ideal, rational people which take a keen interest in financial services but which only exist in theory.
For example the FCA highlighted its research which found consumers in some markets are unwilling or unable to access financial advice, meaning they often make complex choices without support.
It pointed out that more than twice as many pots are moving into drawdown than annuities, yet the proportion of drawdown bought without advice has risen from 5 per cent before the freedoms to 30 per cent now.