The Targeted Support framework: a “once in a generation” opportunity to reform customer support?

At a glance

• The FCA’s latest Consultation Paper 25/17 sets out proposals for a new advice framework: Targeted Support (TS), which is intended to offer firms a “once in a generation” opportunity to rethink engagement and support for investment and pensions customers.
• Under these proposals, firms will be able to design product suggestions that would be suitable for specific customer segments, with common characteristics, in pre-defined situations. Unlike existing regulated advice, which must be charged for, this can be offered for free. 
• The requirement to develop segments that are not “overly complex” nor too granular to avoid misleading customers will generate much debate. So will the need for firms to evidence that customers under TS receive “better outcomes” than if TS had not been provided. 
• The new regime could have a material impact on market dynamics with winners and losers. For example, retail banks that rely on significant cash deposits might see customer cash savings move into equities; asset managers that are vertically integrated are well positioned to benefit, while regulated advisor firms might see some customers moving towards TS instead. For insurers in the DC space the proposed descoping of consolidation support and annuity naming from TS should be factored in any detailed TS plans. 
• The focus of the FCA centres on a list of very specific situations that are perceived to deliver poor outcomes, such as pensions under-saving or excessive cash investments.
• Based on the proposals, firms should start the process of assessing their strategic options, including possible impact on market dynamics mentioned above, costs, data gaps, infrastructure, risks and operational challenges. There will only be three months between final rules and the authorisation gateway opening. TS will be a specific regulated activity that will require regulatory authorisation and firms should allow enough time to complete the process if they want to be an early mover. 
• Some areas are still being worked through such as the interaction with the regulations on direct marketing, and the FOS approach to TS-related complaints.
• This proposal will require firms to think about their strategic choices. Firms will need to decide whether they want to play in the TS space or not and how this decision interacts with their existing services and market dynamics. It is also worth considering the impact of TS in the context of other evolving regulatory initiatives. We are of the view that a firm’s approach to TS should be at the top of executives’ and boards’ agendas to ensure the best quality of decision making on a subject that could change market dynamics for decades to come.

The consultation is open until the end of August.  Final rules are expected before the end of 2025 and the authorisations gateway will open in March 2026. 

Who this blog is for: Board Members, CEOs, COO, CROs, Risk and Compliance teams, Heads of Strategy, Heads of Retail Investments and Defined Contribution (DC) pension products at Retail banks, Asset and Wealth managers and Life insurers.

1. Understanding the FCA’s new “consumer support continuum” structure

Despite growing demand for financial help, a large proportion of UK consumers remain underserved when it comes to financial support. Regulatory constraints have made it challenging for firms to provide personalised support without crossing the regulated advice boundary.

The FCA’s proposals comprise two complementary approaches to narrow the gap between generic advice and guidance:

• Targeted Support: Allows firms to provide ready-made suggestions/recommendations to clients that have common (including and excluding) characteristics. The suggestions should be suitable at the consumer segment level and firms must ensure customers receive better outcomes than if they had not taken TS.
• Simplified Advice: Allows firms to offer personal recommendations for straightforward, clearly defined narrow customer needs using streamlined, standardised processes. Consultation expected in Q1 2026.

Figure 1 provides an overview of the timeline ahead.

Figure 1: Timeline

Figure 2 outlines some of the key differences between the approaches in the consumer support continuum.

Figure 2: Comparing types of support

2. The TS framework: key features

TS will include an internal design phase where firms need to determine pre-defined situations, define consumer segments and develop ready-made suggestions; and an external (client facing) delivery phase when ready-made suggestions are matched and verified before being delivered to customers. This area of the proposals remains unchanged from the previous consultation analysed in our insight here.

Figure 3: TS framework structure

A. Scope 

The FCA is proposing some scope restrictions and limitations to the TS regime which mainly affect the DC pensions sector and should be taken into account when assessing the TS opportunity. 

• Segment design: firms must provide TS to groups of customers who share similar characteristics — such as age, account types, or types of transaction. Segments must include “including” and “excluding” characteristics.  Segment design and granularity will be one of the regime’s most complex challenges. Segments should be sufficiently granular to be relevant to customers and deliver better outcomes, but broad enough to avoid any confusion or overlap with advice. The FCA will let firms develop their own approach to TS but expects consumer segments to avoid relying on “overly complex” characteristics or “overly granular data”. Firms will likely need to go through an iterative process with the FCA to determine their approach in practice. Identifying the right level of segment granularity will not only be crucial for regulatory compliance, but also to ensure the commercial viability of TS.
• Product scope: TS will apply to DC pensions and retail investments, which means all other financial products and related actions will remain out of TS scope. In addition, within the scope of investment products, the FCA is proposing to exclude high-risk products and products that are excluded from FCA marketing rules. For pensions, TS suggestions to consolidate pots and suggestions naming annuity products will remain outside of the scope (see Figure 4).

Figure 4: TS product scope

Firms will have significant flexibility to design a TS approach that aligns with their business profile, customers, and product suite. Through the proposals’ development, the FCA commissioned substantial consumer research¹ and interacted with firms in a Policy Sprint. The lessons learnt from these have been woven through the proposals and highlight the FCA’s expectation that firms will apply behavioural science and consumer research findings to identify the best approach to developing TS suggestions and how to deliver them. In addition, the FCA has provided the following use cases highlighting potential applications and benefits of TS.

Figure 5: FCA’s proposed use cases

B. Applying for a TS authorisation

Only FCA-authorised firms with over £500,000 in capital will be permitted to offer TS. To deliver TS, firms must apply for a new Variation of Permission (VoP) from March 2026. The VoP application will require firms to set out a fairly granular view of the TS framework, including: explanation and justification of consumer segmentation methods, TS journeys, TS governance and control frameworks, and customer testing evidence supporting the firm’s approach. Firms will be able to submit their draft application to the FCA’s Pre-Application Support Service (PASS) to get early feedback on their application in Q4 2025. There will only be three months between final rules and the authorisation gateway opening. If firms want a first mover advantage in providing TS, then they should prioritise TS development now to be well positioned to start business in the first half of 2026 – this is likely to be a very tight timeline for most. 

C. TS disclosures approach 
 
The FCA has removed its previous proposals to introduce mandatory customer disclosure touchpoints in the TS journey, but still expects firms to be very transparent when delivering TS and, of course, ensure compliance with the Consumer Understanding outcome in the Consumer Duty.  
 
Firms will have to test customer understanding of TS, and clearly disclose that TS is different from fully regulated advice and not an individualised service. Firms will also have to disclose the common characteristics of the TS segment customers belong to, and any limitations in the data used to provide TS suggestions. The Sprint² and FCA research³ showed that customers tend to have “disproportionate expectations” about the granularity of data used to form TS suggestions they receive. Clearly signposting the limits of TS suggestions will be crucial to mitigate risks of product mis-selling.

D. TS charging model 
 
Firms will have discretion on how to charge for TS — from embedding costs in account fees, offering TS free of charge, or establishing standalone charging models. This marks a notable difference to regulated advice and could undoubtedly help in making the regime more accessible to consumers. 
 
In designing their commercial TS models firms should consider: 

• How their charging model delivers fair value to customers with a focus on differential customer outcomes and the impact of cross-subsidisation on vulnerable customers. 
• How to manage conflicts of interest to avoid misaligned incentives that could result in irrelevant nudges, overselling or partnerships with parties that might not be offering good value to customers. 
• DC Pensions providers should also consider how cross-subsidisation of TS may affect their rating under the upcoming FCA Value for Money for DC pensions regime.

E. Remaining areas of uncertainty around marketing and complaints / redress

Two key areas that could act as barriers to successful TS implementation are still unresolved as acknowledged in the CP:

• TS services are expected to fall under the FOS remit. Whilst the FCA acknowledged that TS complaints should be handled differently to complaints on advice - and this was raised by firms during one of the FCA policy sprint - it did not provide any further guidance on how TS-related complaints would be handled by the FOS. We are expecting the outcome of HM Treasury’s review of the FOS shortly and this may shed light on the future of the FOS and its approach to TS-related complaints. 
• Direct marketing rules: Whilst firms may be able to proactively provide TS suggestions to customers, these may be classified as “direct marketing,”. This means that opt-in consent rules under Privacy and Electronic Communications Regulations (PECR) could restrict reach.  The FCA and ICO are working on this area. Firms will need clarity around this in advance of designing their marketing and communication strategy and plans.

Making the model work – key considerations for firms

TS within the wider spectrum of customer support and market dynamics

The FCA expects TS to be one building block integrated into firms’ overall customer support continuum instead of a large-scale alternative to advice. Therefore, the development of TS should not be considered in isolation from other key components of a firm’s product distribution and customer support strategy. 

TS will be a new model of engaging and supporting customers and could change market dynamics. The impact will vary by sector and depend on firms’ differing business models. 

For example, retails banks that currently hold material customer cash deposits might experience higher propensity of savings moving to investments; banks that already have a retail investment division might see this as an opportunity while those that don’t might experience this possibility as a threat. 

Asset managers that are vertically integrated are well positioned to benefit by using their direct to consumer (D2C) platforms and potentially target customers with wealth pots below the levels currently required when providing fully regulated advice. 

Wealth managers and financial advisor firms might identify the possibility of customers switching from advised services to TS as a threat. On the other hand, some of these firms might choose to develop TS to foster relationships with customers that currently would not be suitable for fully regulated advice, allowing them to build a new generation of customers from a lower wealth bracket as a transitional tool towards fully regulated advice later in life. 

For insurers in the DC space the proposed descoping of consolidation support and annuity naming from TS might pose a lower incentive to develop a TS framework. That said, TS might open the door to better customer engagement through accumulation which in turn might improve both pension savings levels and asset retention post decumulation points. 

While the FCA’s own Cost-Benefit Analysis (CBA) projects that TS could deliver over £700 million in consumer benefits annually⁴, (as a central estimate), the estimated marginal benefits for firms remain modest (c£25m per year in total, split between 60-130 firms) creating a delicate balance between customer outcomes, and commercial viability. However, it is very likely that such a modest estimate of firms’ overall benefit averages out between clear winners and losers. This means that firms need to be very careful in their analysis so they can anticipate both threats and opportunities arising from the new framework.

Actions for firms

Firms should look to respond to the consultation to flag any areas where the current proposals might have a material impact on the effectiveness of the new regime. More importantly, we are of the view that firms already have enough information to conduct a strategic assessment of the TS opportunity for their business to enable decision making. This assessment should include:

• An assessment and scenario analysis of the potential impact of TS on market dynamics as discussed above:
• An analysis of where TS would fit within the firm’s current product and support offering including identification of key products, pre- defined situations and suggestions likely to be adopted.
• Assessment of the need to partner with other FS providers - the regime is likely to be widely adopted by firms that are vertically integrated leaving other firms to determine their role in the new ecosystem. 
• Identification of data and IT infrastructure gaps that require addressing to enable the determination of consumer segments and validation of customers belonging to them. Data will be at the heart of the TS offering, with firms having to carefully consider the nature of the data they will need to use or collect from a consumer to align them with the segment.
• Analysis of operational challenges including around new product and journey designs, assessment of the need to invest in customer engagement tools, design of a TS disclosure framework and updating compliance and risk monitoring tools to allow the firm to meet its regulatory requirements in respect of TS.
• Determination of the commercial model to be applied to TS including approach to cross-subsidisation and product bundling.

The wider landscape: TS as one piece of a bigger puzzle

There are many regulatory initiatives moving at pace under the Government’s and regulators’ growth objectives. Firms should take these developments into account when deciding their TS strategy as they are likely to have a material effect on TS implementation over the coming months and years.

Figure 6 illustrates some of the interconnected initiatives and how they are all anchored by the Consumer Duty.

Figure 6: TS within the wider regulatory landscape

The Consumer Duty will be a central focus point for firms implementing a TS framework. In particular, the need to evidence the delivery of better outcomes under TS compared to the customers not having received TS. But beyond the Duty and FCA rulebook, firms will need to coordinate their TS roll-out with numerous regulatory developments cutting across three main categories:

• Customer Data ecosystem: the Open Banking regime in place will allow firms to use current account information (e.g., on account balance) to define including or excluding characteristics. Looking forward, the new Data (Use and Access) Act 2025 also gives powers to HMT to expand the Open Banking regime to broader FS data, and the Pension Dashboard will further expand the data available to provide pension recommendations⁵. Whilst we expect the roll-out of Open Finance to be phased in the UK, integrating these data-sharing initiatives into firms’ digital strategies will be crucial for identifying high impact use cases early, and developing a future-proof approach to TS.
• Technology and AI: We expect firms to leverage the potential of AI to enhance their operational efficiency and improve customer outcomes when designing TS models. The FCA has recently introduced two new test environments for firms considering rolling-out AI use cases, the AI Lab for more mature AI use cases focused on market deployment testing, and the AI Supercharged Sandbox for those at the proof of concept stage. Whilst firms may not immediately consider customer-facing AI applications, the FCA test environments will offer opportunities to safely test internal AI use cases to review and refine consumer segments or test TS customer outcomes.
• Investment disclosure: Firms will also need to ensure that their TS suggestions do not breach any other investment disclosure requirements. For example, TS suggestions should be consistent with the transparency and accessibility requirements of the Consumer Composite Investment (CCI) regime. Similarly, firms must include accurate and non-misleading sustainability-related claims if they make suggestions falling under the scope of the FCA Sustainability Disclosures Requirement and anti-greenwashing rules. Considering these requirements in the round could bring opportunities to make efficiency gains and ensure firms adopt a consistent approach to product disclosures across the business.

Conclusion

In conclusion, firms will need to decide the strategic impact of these proposals - how they interact with their existing services, market dynamics and other key regulatory initiatives in the pipeline. We are of the view that a firm’s approach to TS should be at the top of executives’ and boards’ agendas to ensure the best quality of decision-making on a subject that could change market dynamics for decades to come.