As the FCA prepares to roll out its targeted support framework, firms face both a regulatory opportunity and a compliance hazard. In this exclusive guest insight for IFA Magazine, Greg B Davies, Head of Behavioural Finance at Oxford Risk, warns that without embedding behavioural understanding into consumer segmentation, targeted support could fall short of its Consumer Duty promise, creating a framework that looks fair on paper but fails in practice.
The FCA’s targeted support framework represents a significant opportunity to close the long-standing advice gap. The principles are sound. The intentions are good. But there’s a glaring weakness that risks transforming a well-intentioned initiative into a compliance minefield: the framework’s silence on behavioural differences between consumers.
This isn’t simply a minor technical oversight. It’s a fundamental flaw that could expose firms to regulatory scrutiny, consumer complaints, and ultimately, the very outcomes the framework was designed to prevent.
Where Consumer Duty meets targeted support
Targeted support doesn’t exist in a regulatory vacuum. It sits squarely within the Consumer Duty’s cross-cutting obligations. Under the Consumer Duty, firms must ensure communications are understood, products and services meet consumers’ needs, and outcomes are demonstrably good.
These aren’t just guidelines; they’re enforceable standards. And they pose an unavoidable question: how can firms demonstrate they’ve met these obligations when their consumer segmentation ignores the very behavioural traits that determine whether support will actually work?
The answer is they can’t. At least, not convincingly.
The pathway from good intentions to poor outcomes
Without accounting for psychological differences like impulsivity, composure and confidence, firms may deliver solutions that appear suitable on paper but fail in practice.
This creates a clear pathway to regulatory issues:
A firm segments consumers using demographic and financial characteristics. A 58-year-old approaching retirement with £250,000 in pension savings receives targeted support suggesting a specific drawdown strategy. The recommendation looks suitable on paper as it accounts for age, assets, and basic risk tolerance.
But the consumer has limited behavioural capacity—their overall emotional ability to take and sustain investment risk is low. In this case, high Impulsivity and low Composure mean they struggle to stick to the plan. Within six months, they deviate from the suggested withdrawal schedule, taking larger amounts to fund impulse purchases. They face greater sequencing risk and, by year three, are on track to exhaust their pension pot a decade early.
The consumer complains. The firm points to its segmentation methodology. The complaint escalates to the Financial Ombudsman Service (FOS), which examines whether the firm took reasonable steps to ensure the support was not just financially but also behaviourally suitable, reflecting how this consumer was likely to act in practice.
The firm struggles to demonstrate this. However sophisticated its financial data, it overlooked the behavioural factors that ultimately determined whether the recommendation would succeed or fail in real life.
Considering desire for guidance and impact desire
Impulsivity and Composure illustrate just two aspects of behavioural capacity — the overall emotional ability to live with investment risk over time. Other traits also play a decisive role. Consider, for instance, Desire for Guidance and Impact Desire:
Desire for Guidance measures the extent to which an investor wants to be included in financial decision-making. This isn’t the same as Risk Tolerance, it’s about decision-making autonomy. A consumer with low Desire for Guidance receiving targeted support that requires active ongoing decisions may struggle to engage. They want direction, not options. Conversely, high autonomy consumers receiving overly prescriptive support may feel patronised and disengage entirely. The same suggestion produces opposite outcomes for behaviourally different consumers.
Impact Desire measures how much investors want to align portfolios to social and sustainability goals. Consider a segment of 45–55-year-olds with £100,000 to invest. A firm suggests a conventional diversified fund. For consumers with low Impact Desire, this may be suitable. But for those with high Impact Desire – a significant and growing proportion – the same suggestion feels fundamentally wrong, regardless of its financial characteristics. These consumers are more likely to delay investing or disengage entirely.
The regulatory exposure is clear: firms cannot demonstrate “better outcomes” when recommendations systematically ignore preferences that materially affect whether consumers act on support and remain engaged over time.
Behavioural suitability by design
This regulatory exposure is entirely avoidable. Firms that integrate behavioural assessments into their segmentation from the outset transform potential liability into competitive advantage.
Behavioural suitability doesn’t require individualised assessments for every consumer – that would defeat the efficiency gains targeted support promises. Instead, firms can identify a small set of behavioural personas that map naturally onto predefined segments. Research assessing thousands of investors globally shows consistent patterns: within each traditional demographic group, distinct behavioural clusters emerge, each with recognisable differences in comfort with risk, confidence, and decision-making style.
Incorporating these personas achieves three critical objectives. First, it ensures the framework works in practice and that support aligns with how consumers genuinely behave. Second, it demonstrates compliance with Consumer Duty obligations. Third, it provides robust evidence that the firm has genuinely pursued “better outcomes” in both design and delivery.
Meeting both letter and spirit
The history of financial regulation demonstrates a clear direction of travel: from box-ticking to genuine outcome focus. Targeted support offers firms a choice. They can treat behavioural considerations as optional or they can recognise that without behavioural insight, the framework risks being neither well-targeted nor genuinely supportive, exposing firms to regulatory consequences while failing the very consumers it was designed to help.
Behavioural insight turns Targeted Support from a compliance risk into an opportunity to deliver genuinely better outcomes for investors, and for the firms that serve them.
By Greg B Davies, Head of Behavioural Finance at Oxford Risk
