Today marks the closure of the consultation on the Financial Conduct Authority’s (FCA) latest brainchild: ‘targeted support.’ Under this scheme, financial firms would be permitted to provide customers with personal suggestions based on limited information, all without these recommendations being classified as regulated advice. In effect, this initiative paves the way for financial institutions to peddle investments to those least able to afford them—free from the tiresome burden of accountability for mis-selling. How marvellous.
The FCA, in its infinite wisdom, appears to view this additional extraction of capital from the pockets of voters into the coffers of City bankers as a noble effort to facilitate economic growth. Yet, what it fails to acknowledge is that stripping consumers of disposable income will, if anything, dampen consumption, thereby achieving quite the opposite. One wonders whether the regulator’s true ambition is to shore up the financial services industry at all costs, regardless of the wider economic consequences.
Naturally, industry cheerleaders have lauded the proposal. The ability to inform an investor that their withdrawal rate is unsustainable or that they are ensnared in an extortionate tracker fund—while simultaneously steering them towards a ‘better’ (read: more profitable for the distributor) alternative—is, they claim, a progressive step. Presently, any such intervention might be classified as regulated advice, thereby leaving firms open to the ghastly prospect of regulatory scrutiny and consumer redress. The proposed reforms would conveniently eliminate this inconvenience.
Firms now find themselves in an unenviable predicament: should they warn a customer of foreseeable financial peril and risk a complaint to the Financial Ombudsman Service (FOS), or should they remain silent and thereby betray the lofty principles of Consumer Duty? It is a rather elegant conundrum—one that, unsurprisingly, the FCA is keen to resolve in a manner that favours the industry’s interests.
While the current consultation is narrowly focused on pension advice, further expansion into retail investing is all but inevitable. After all, if the intent is to ‘empower’ non-advised investors, why stop at pensions? Why not extend these benevolent interventions to all financial products, ensuring that every last consumer can be ushered towards financial products of the industry’s choosing?
The FCA’s approach, we are told, will lean upon Consumer Duty rather than impose excessive prescription. The regulator and government, so we must believe, have engaged extensively with the industry to craft reforms that will ‘benefit consumers’ whilst ensuring ‘adequate protections.’ Indeed, one can scarcely imagine a more reassuring phrase than ‘adequate protections’ when set against the backdrop of historic mis-selling scandals.
Of course, there remain ‘challenges to overcome’—a delicate euphemism for the logistical and ethical nightmares yet to be ironed out. Firms that deign to offer targeted support must possess the capability to design, implement, and monitor interventions that genuinely improve consumer outcomes. The FOS will also play a pivotal role in adjudicating complaints, assuming, of course, that consumers have the means and fortitude to challenge the financial institutions in the first place.
In an ideal world, we would encourage more individuals to seek the counsel of truly independent, financial planners without product agency, particularly as they approach retirement. But that would be rather too sensible, wouldn’t it? Instead, we are presented with this artful compromise: a mechanism for firms to ‘support’ consumers in a manner that is, by sheer coincidence, highly profitable for themselves.
And so, in a year sorely lacking in good news, the financial services industry may well cling to ‘targeted support’ as a beacon of hope. Whether consumers will share this enthusiasm when the inevitable consequences manifest remains to be seen. But, then again, history suggests that by the time the full ramifications are understood, those responsible will have long since moved on—most likely, to roles advising the very regulator that approved the scheme in the first place.
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