The FCA’s new “targeted support” regime, introduced to bridge the gap between generic guidance and regulated financial advice, risks being more complex and less effective than the system it replaces, says Matthew Bowles Last Monday, the Financial Conduct Authority (FCA) formally introduced its new “targeted support” regime. This is an attempt to bridge the long-discussed gap between generic guidance and fully regulated financial advice. At first glance, the policy sounds sensible.

Just six per cent of UK adults took regulated financial advice in the 12 months to May 2024, and millions continue to sit on large cash balances earning little in real terms. Faced with an ageing population, under-engaged savers and widespread inertia in pensions and investment decisions, policymakers have been searching for a scalable solution. “Targeted support” is the FCA’s answer: a framework that allows firms to offer suggestions to groups of consumers with shared characteristics, nudging them towards decisions such as investing excess cash or adjusting their pension drawdown, all while avoiding crossing the line into full, personalised advice.

But beneath the technocratic language lies a more troubling reality. This reform risks creating a system that is far more complex, and ultimately less effective, than the one it seeks to replace. The first problem is conceptual.

For decades, British financial regulation has rested on a clear – if imperfect – distinction between “guidance” and “advice”. One is general and low risk, the other is tailored and heavily regulated. Consumers may not have understood the difference, but financial services firms certainly did.

Targeted support deliberately blurs that line. Firms are now expected to provide recommendations that feel personal and are based on customer data, while simultaneously insisting these do not constitute advice. This is not a simplification of the regulatory boundaries, but an added complication.

Ambiguity matters This ambiguity matters. In financial services, lines that are fuzzy in theory tend to become liabilities in practice. If a consumer were to act on a “targeted” suggestion and later suffers a loss, it is far from clear where responsibility will ultimately fall.

The UK’s expansive complaints culture, not least through the Financial Ombudsman Service, may well fail to treat these distinctions with the same nuance as regulators intend. Any negative publicity from irate investors publicly maligning unsuccessful “advice” could easily taint public perception of the whole project. The result will likely be one where firms proceed cautiously and potentially limit the scope of what they offer.

In other words, the “advice gap” that the FCA is trying to solve risks being reproduced only in a slightly different form – essentially a rebrand which the government can laud as a successful reform, with little of substance changed. Targeted support represents a shift toward a more paternalistic model of financial regulation. The FCA is not merely ensuring markets function properly but is actively encouraging particular behaviours The second issue is philosophical.

Targeted support represents a shift toward a more paternalistic model of financial regulation. The FCA is not merely ensuring markets function properly but is actively encouraging particular behaviours. The direction of travel is clear.

Consumers are to be nudged away from cash and toward investment. Politicians and influencers, such as Rachel Reeves and Martin Lewis have been trying to change these behaviours too. And you can see why – only 23 per cent of Brits have invested in the stock market, compared to nearly two-thirds of Americans (when excluding workplace pensions).

In each case, the assumption is that a regulator will implicitly be making a judgement about what constitutes a good financial outcome. But this raises some uncomfortable questions. Financial decisions are inherently personal; they are often shaped by an individual’s risk tolerance or time horizons.

A framework that encourages uniform “better outcomes” risks ironing out genuine differences in how people manage their money in favour of a one-size-fits-all standard. This raises a further concern about where such nudges ultimately lead. Once regulators begin shaping the architecture of investment decisions, they also acquire the ability to shape the destination of capital itself.

That could mean, in time, encouraging flows into politically favoured asset classes, for example toward infrastructure from so-called “sustainable” funds. James Graham’s work on the death of the fiduciary duty speaks directly to this tension. The third concern is an economic one for financial services companies.

Fully fledged financial advice is expensive because it carries significant regulatory burdens and liability. Guidance is cheap because it does not. Targeted support, however, appears to be attempting to combine elements of both: improved customer outcomes alongside reg