The FCA has recently published guidance for firms on designing consumer segments to deliver targeted support effectively, balancing detail and suitability without crossing into personalised advice. Thistle Initiatives Consultant, Sophia Ioannou, explores the guidance and outlines the key takeaways.
The FCA has published some examples of good and poor practice to guide firms when designing consumer segments for targeted support. This publication should be considered by firms where a customer puts forward a complaint related to a firm’s targeted support.
The guidance covers the following areas:
When defining common characteristics, firms must consider whether the common characteristics identified are appropriately considered by the definition of a consumer segment and outline characteristics for grounds of inclusion and exclusion, whether recommendations are suitable or unsuitable. The segment must include specific and tailored information to evaluate whether standard suggestions are available.
Firms must ensure that there is a balance between creating segments that are detailed enough to provide targeted support but are not overly detailed and could therefore be considered as personalised advice. The level of detail required can be based on complexity, with low complexity situations requiring less detailed information and common characteristics.
However, high-complexity situations require more detailed information regarding common characteristics to ensure appropriate grounds are covered for consumers. Where a customer’s full individual circumstances are required, this would fall outside the scope of the targeted support and would require personalised advice.
Targeted support focuses on supporting needs and objectives for groups of people rather than personalised advice. As a result of this, firms do not need to assess every area or gather additional information regarding the circumstance. However, if data or information available suggests that an individual may be unsuitable for a service, this must be carefully considered.
All ready-made suggestions must be supported by existing evidence to reach their conclusion, whether suitable or unsuitable.
When firms provide ready-made suggestions, suitability should be based on the shared needs or goals of a consumer segment, along with any relevant common characteristics of that group.
Firms can use reasonable assumptions to simplify how segments are defined, but these assumptions must not impact whether the suggestion is actually suitable.
Firms should ensure any assumptions are reasonable and backed by evidence. Suitability should always be based on the group’s shared financial needs or objectives and relevant characteristics.
Firms must not overly rely on assumptions; suitability should be based on the segment’s shared needs and key characteristics. If an assumption could significantly affect suitability, it should be considered to be a core characteristic, not an assumption.
Sophia recently joined Thistle as a Consultant in the Investment Wholesale team. She holds a Bachelor of Science in Psychology from the University of Nottingham and brings a strong foundation in investment compliance. Before joining Thistle, she worked at a hedge fund where she supported regulatory development projects and contributed to policy reviews, giving her practical insight into how firms adapt to emerging requirements. She has also completed the CISI Introduction to Securities and Investment and Global Financial Compliance modules, which further strengthened her technical knowledge.