Customers will be given suggestions on what to do with their pensions and investments under new rules coming into effect from Monday.
New rules on so-called targeted support from the Financial Conduct Authority (FCA) aim to help people who perhaps cannot access traditional financial advice.
The FCA estimates at least 18 million people could be offered targeted support within a decade, in a bid to address the advice gap – the difference between those who have and have not accessed financial advice.
It allows financial firms, such as banks and pension firms, to provide suggestions designed for groups of consumers with common characteristics to help them make important decisions across their pensions and investments.
Customers will be put into segments with others who have similar financial support needs or objectives.
Providers will then be able to provide ready-made suggestions to these segments which customers can act upon to address their needs.
What will firms be doing?
Ben Hampton, chief executive of advice at Royal London, said providers will now be moving from telling customers what they could do, to recommending what people in similar situations and circumstances should do.
He added: “Think of it like your Netflix account, where you get recommendations based on what people with similar viewing habits have also enjoyed.
“Targeted support will give people the confidence to act on key pension and investment decisions.
“It creates a sliding scale of help and is a middle ground between generic guidance and fully individualised advice. It is not a substitute for individualised, ‘paid for’ advice – however, for many, it will be a bridge to it.”
Customers will receive clearer, more timely and more relevant prompts, rather than having to rely on generic information to make decisions about their investments and savings.
Georg Bauer, head of investment and product for global platform solutions at pension and investing firm Fidelity International, said: “Targeted support will be particularly valuable in helping people better understand the benefits of investing, especially for those who may currently be holding large amounts of cash or who only engage with their finances at key life moments.”
Fidelity said the areas it was exploring to implement targeted support was around how it could better engage customers sitting on large amounts of cash to help them start investing, as well as offering more support to help people make decisions about their retirement.
“As part of these areas, we expect to suggest more specific courses of action to issues facing groups of customers, such as maximising matching employer pension contributions, investing cash deposits in assets likely to provide a better outcome over longer time frames and adjusting to more sustainable levels of income withdrawal in retirement,” Bauer added.
Who will need financial support?
According to FCA data, there are around 7m adults in the UK with £10,000 or more in cash savings who could be missing out on the benefits of investing throughout their lives.
Fewer than 1 in 10 people obtain regulated financial advice but nearly one in five investors turn to social media for help making decisions.
Targeted support is aimed at those who don’t obtain advice.
For many people the biggest barrier to accessing advice is not having enough investable assets to be eligible, with many advice firms requiring prospective clients to have a minimum of £250,000.
In early testing of targeted support, customers felt more confident and better equipped to take action with their pensions and long-term savings, according to Royal London.
The FCA is also looking into introducing rules that will allow financial firms to provide simplified advice and is currently consulting on what this will look like for customers.
Simplified forms of advice will help consumers with more straightforward needs and will not require a full assessment of all their financial circumstances, making it more accessible and affordable.
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