Helping firms provide more support to customers making investment decisions

Read examples on providing consumers with greater levels of support, including getting closer to the advice guidance boundary for giving a personal recommendation.

How to use this information

In 2022, the Government announced plans to fundamentally review how the boundary between advice and guidance on investments is operating. This review will be carried out by the FCA, in conjunction with the Treasury, as part of the Edinburgh Reforms.

The review is a substantial piece of work that will take time. In the meantime, we encourage FCA-authorised firms to provide greater levels of support for consumers making investment decisions. We, therefore, remind firms of how the advice boundary currently operates. By building greater confidence among firms to operate closer to the relevant boundary, we hope to improve access to investment guidance and advice for consumers.

This information highlights the different ways FCA-authorised firms can support consumers under the existing regulatory framework, drawing from existing rules and guidance, pending any changes that might be implemented following the review.

The information on this page does not represent any change to regulatory requirements.

We set out examples of where firms, authorised and regulated by the FCA, can support consumers without inadvertently providing a personal recommendation[1]. These examples also consider firms’ new obligations under the Consumer Duty[2], which came into force on 31 July 2023 for most products.

Why the right support for consumers matters

We want to see more consumers invest with confidence, understanding the risks they are taking and what regulatory protections apply. We want consumers to be able to get advice or support when making their investment decisions. The Financial Lives Survey 2022[3] estimates 4.2 million UK adults with at least £10,000 held mostly or entirely in cash, have some appetite for investment risk. These people might benefit from support to do more with their money than leave it in cash.

Additionally, 2015 pension freedoms give consumers more potentially complicated decisions to make about their pension savings. Accessing the right support is crucial to enable consumers to make informed investment decisions; and consumers who receive this support are more likely to invest.

We believe some FCA-authorised firms may be hesitant to provide help to consumers due to an overly cautious interpretation of the current regulatory framework, and because they are concerned about the regulatory requirements that apply if they provide a personal recommendation. As a result, firms may be providing less help than they could. This could lead to consumers suffering harm that might have been avoided if they had received more support or information from their firm.

Understanding the advice boundary as it applies to a regulated firm

Whether or not any support given to a customer amounts to advice is generally only relevant to persons who are not appropriately authorised by the FCA (see PERG 8.24[4]). Generally speaking, if a person who is not FCA-authorised gives investment advice, they are acting in breach of the general prohibition in section 19 of the Financial Services and Markets Act, which is an offence.

For FCA-authorised persons, the relevant boundary is not the giving of advice, but the giving of a personal recommendation. This is because, broadly speaking, as a result of the reforms introduced following the Financial Advice Markets Review[5], an FCA-authorised firm only gives investment advice if the advice amounts to a personal recommendation.

What is a personal recommendation

A personal recommendation[1] is a recommendation made to an investor or potential investor in relation to a security, structured deposit, or a relevant investment[6] that is presented as suitable for the person to whom the recommendation is made, or is based on a consideration of that person’s circumstances. The definition excludes a recommendation issued exclusively to the public (see PERG 8.30B.2G[7]).

When advice or support is not a personal recommendation

Investment advice that falls short of a personal recommendation is governed by the same high-level standards as apply to investment guidance and other more general communications between a firm and its customer, notably the new requirements under the Consumer Duty, but also existing high-level requirements in COBS, (eg the client’s best interests rule[8] and the fair, clear and not misleading rule[9]).

Some support given to a consumer will not be a personal recommendation if it is not investment advice to begin with. For example, a communication will not be advice if it is:

Purely factual information

It is purely factual information without expressing any opinion or value judgement on the relevance of that information to the customer’s investment decision, and without suggesting any course of action. The provision of purely factual information does not become a personal recommendation merely because it feeds into the customer’s own decision-making process and is considered by them (see PERG 8.28.2G[10]).

It doesn’t relate to a particular investment

On its own, generic or general advice, for example on the merits of investing in investment trusts as opposed to unit trusts or unit-linked insurance, or in Japanese rather than European equities, does not amount to the regulated activity of advising on investments (see PERG 8.26G[11]).

This means authorised firms would not be giving advice (and therefore not be giving a personal recommendation) where they offer the following kinds of support, for example:

Where a customer asks a firm about the difference between an ISA and a pension, a firm can explain their different features eg, access restrictions and tax treatments.
Where a customer asks a firm how much they can withdraw from their pension each year to maintain a desired standard of living throughout retirement. The firm can explain that this is uncertain and the reasons why and direct the client to tools which may help them, such as an online calculator, where personal information or parameters for a query are input and controlled by the customer.
Where a customer indicates they would like to take a withdrawal rate that may be too high. The firm may remind the customer that pensions are designed to fund expenses in the future and taking funds from a pension now may mean there will not be enough left for later life.
Where a firm is aware that a customer who is asking to take out an annuity has a partner. The firm can explain that the customer has an option to take out either a single life or joint life annuity and explain the consequences and risks of each option.
Explain factually any potential tax implications of any transaction request.

Further examples of support which isn’t a personal recommendation

Other forms of support an FCA-authorised firm may give to a customer may involve the giving of advice but without amounting to a personal recommendation. As noted above, advice that is not a personal recommendation is subject only to high-level requirements, for example, the clear, fair and not misleading rule and the Consumer Duty, and not to the detailed rules that apply to the giving of personal recommendations.

A firm does not give a personal recommendation if the recommendation is issued exclusively to the public, even if all other elements of the definition are met.

Example A: A firm could publish on its website, in a way accessible to all, a suggestion that its customers take particular action, where the firm considers on reasonable grounds that the action is in the best interests of all its clients, or is an appropriate way to mitigate the risk of harm to them.

This could include ways for its customers to avoid extra costs or charges; prevent or mitigate investment losses; enhance their gains under particular market conditions; or earn more interest. The publicly issued communication would not be a personal recommendation unless it is also issued to one or more particular individuals.

Another way a firm can help the customer without giving a personal recommendation is by making clear to the customer (where this is true and not unfair to the customer) that it has not asked the customer enough information to determine whether a particular investment decision is suitable for them.

Example B: A firm may, if asked by the customer, provide its views on the general merits and potential disadvantages of investors taking a certain course of action in relation to an investment, but without expressing or implying that this is the right course of action for that customer, or that its view is based on information about that customer’s circumstances.

An appropriately and fairly worded disclaimer may help a firm to avoid inadvertently presenting investments as suitable for particular customers or as being based on a consideration of the customers’ circumstances (see PERG 8.30B.21G[12]).

Interaction with the Consumer Duty

Firms need to understand the current regime not only so they can do more to help consumers, but also because the Consumer Duty requires firms to enable and support retail customers to pursue their financial objectives (PRIN 2A.2.14R[13]) and avoid causing (by act or omission) foreseeable harm to retail customers (PRIN 2A.2.8R[14] and PRIN 2A.2.9R[15]).

As we have set out in our Consumer Duty implementation letters on implementing the Consumer Duty in the consumer investments[13] and life insurance[14] sectors, firms should not be reticent to provide appropriate support to consumers dealing with complex products or decisions simply because they are being overly cautious about giving regulated financial advice.

Further examples to help firms understand better where we expect them to comply with the Consumer Duty and where they can do so in a way that doesn’t amount to providing a personal recommendation:

Where a customer has significant cash funds on a platform

In this instance, the firm signals to the customer the drawbacks of holding significant levels of uninvested funds in cash and the possibility for greater returns from appropriate investments over the longer term. Firms should consider the Joint letter from the ICO and FCA[15] to UK Finance and Building Societies Association on data protection and effective communications to savings customers.

Where a customer would like to transfer their pension to a different provider and the firm is aware that the customer may lose a valuable benefit as a result

In this scenario, the firm helps the customer by outlining the risks of losing such benefits and the implications if they are to transfer. For example, if they would lose a protected retirement age, protected tax-free cash or a guaranteed investment return. Where a customer would need to obtain financial advice due to a safeguarded benefit, the firm explains the nature of the benefit that gives rise to the requirement.

Where a customer would like to withdraw funds from a pension and it is clear to the firm that this may have unintended adverse consequences for the customer

For instance, the firm outlines the potential consequences of withdrawing pension funds such as potential tax consequences or affecting means-tested benefits. Firms should also note the retirement risk warning requirements in COBS 19.7[16].

Where a customer would like to make a withdrawal from an investment or pension and the firm suspects that the customer may possibly be the victim of a scam or fraud

The firm helps the customer avoid harm by providing appropriate warnings about the risks and implications of their chosen option and encourages the customer to seek financial advice before proceeding.

Where a customer is seeking to reduce or stop their pension contributions due to cost-of-living pressures

The firm makes the customer aware of their options and the short- and long-term potential risks of stopping or reducing their pension contributions, such as losing out on employer contributions and the increased risks of insufficient funds at retirement. Similarly, where a customer is accessing their pension for the first time or increasing their pension withdrawals due to cost-of-living pressures, the firm makes the customer aware of the related potential consequences (taking into account the stronger nudge and retirement risk warning requirements in COBS 19.7 where relevant), including the risk of sustainability throughout retirement and tax/means-tested benefit consequences.

Where a customer’s portfolio has not been re-balanced for some time and the firm is concerned that the portfolio’s current holdings may no longer align with the customer’s needs

The firm contacts the customer to invite them to contact an adviser to review their holdings. So long as the firm does not identify what specific assets the customer should buy or sell, the firm may be giving advice but will not be giving a personal recommendation in that initial communication.

Where a customer wants to withdraw their tax-free cash which may result in poor outcomes

A firm contacted by a customer with a request to withdraw their tax-free cash may have reason to be concerned, based on the information it knows about the customer (for example, about the size of their pension pot and/or income), that their withdrawal risks causing the consumer one or more poor outcomes, for example:

the consumer could find themselves with insufficient income during retirement;
the withdrawal could have an adverse impact on their eligibility for means-tested benefits; or
there could be significant, adverse tax consequences for the consumer

The firm helps the customer avoid potential harm by proactively warning about the risks. The following are good examples of how a firm could achieve this, and may be particularly effective in combination:

Based on the information it does have, identify relevant risks such as the potential adverse tax consequences, impact on eligibility for means-tested benefits, impact on income during retirement, and the irreversible nature of the decision.
The firm provides options for the customer to consider such as providing projections to help the customer understand the different impacts on the sustainability of funds of (for example) spreading withdrawals of tax-free cash over a longer time period or taking different amounts of tax-free cash.
Making it clear the options shown are just options and not actions the firm is recommending, the consumer will need to consider their options carefully in light of their particular circumstances.
The firm could highlight any other key risks it considers the customer should consider, in addition to the retirement risk warnings it is required to provide under COBS 19.7.
The firm outlines the limited information it holds about the customer and makes clear that the risks identified are based solely on this information. Whether the risks are actually relevant and how they may affect a customer, will depend on the full extent of the customer’s circumstances, plans and other financial provision, which the firm may not have information about and the customer should consider further.
The firm could signpost the customer to third parties able to provide more information or advice, in addition to providing the stronger nudge to Pension Wise guidance under COBS 19.7 when the customer decides to access their pension savings. For example, the firm could highlight MoneyHelper guidance[17] in relation to taking lump sums from your pension.

The above examples do not involve the firm giving advice to the customer where, as indicated above, the firm is careful to explain the limited nature of the support they are providing.

Complaints

We have spoken to the Financial Ombudsman Service. It has confirmed that in deciding what is fair and reasonable in all the circumstances of a complaint, this note would be one of the things that it will take into account if a customer brings a complaint on providing further support based on the examples above.

Other available resources

FCA Innovation Hub

Innovation Pathways[18] supports firms that are developing automated advice and guidance models across a range of sectors. These include incumbent banks and insurers, as well as challenger firms that are new to the market. Support includes: 

helping businesses to understand our regulatory regime
supporting firms serving gaps in the advice market, identified by the Financial Advice Market Review.

We continue to provide regulatory feedback to firms developing automated models to deliver lower cost advice and guidance to consumers.

PERG The Perimeter Guidance Manual

PERG 8.24[4] to PERG 8.31[19] sets out the guidance, in particular, PERG 8 Annex 1[20] provides examples of what is and is not a personal recommendation and advice.

PERG 8.30A[21], PERG 8.30B.25G to PERG 8.30B.36G[13] and PERG 8 Annex 1, (D)[25] contains guidance on the use of decision trees and filtering.

11/10/2024 : Information added 'Where a customer wants to withdraw their tax-free cash which may result in poor outcomes'

30/10/2023 : Editorial amendment right hand links

First published: 03/08/2023 Last updated: 11/10/2024 See all updates