The Financial Conduct Authority is considering relaxing the ban on cross-subsidisation to drive down the cost of advice, but acknowledged this may be easier for larger firms.
The Advice Guidance Boundary Review, published today, highlights that some consumers either cannot afford, or are not willing to pay for, financial advice.
It explores ways in which firms could offer support for customers without upfront fees but still recover their costs in other ways.
For example, it looks at whether firms could offer targeted support without an explicit charge for the service.
Consumers often expect some support for free, the FCA said, especially when it is provided by a firm they already have a relationship with.
This could be done by “cross-subsidising” this support from other services provided by the firm, for example through product or platform charges.
Cross-subsidisation was banned in the Retail Distribution Review of 2012 to encourage greater transparency.
The regulator went on to say there would need to be “appropriate protections” in place to prevent consumers from any potential harms.
Though, the regulator said this approach is expected to be easier for larger firms to take up.
It said: “Enabling firms to offer targeted support via cross-subsidisation but not via commission may mean that it is most likely to be taken up by larger, more established, vertically integrated firms.
“We will continue to explore the potential bias towards these firms, but this is in line with the intention that targeted support would be an offering predominantly taken up by product manufacturers.
“The option to charge a low subscription fee would still allow a viable route for other non-vertically-integrated firms to enter the market.
The RDR banned cross-subsidisation and commission payments to improve transparency and level the playing field.
The FCA stood by these interventions, saying they were correct, but it said it was open to new forms of remuneration being permitted to increase support for customers.
The report added: “In particular, we think permitting limited forms of cross-subsidisation may well be appropriate.
“However, any new targeted support regime would be subject to the consumer duty and the need to focus on client outcomes, including for price and value and consumer understanding.”
tara.o'connor@ft.com
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