People who would otherwise turn to friends, family or social media influencers for financial advice will get new help investing their money.
Targeted support for registered banks and other financial firms is being given the green light by the city regulator and should begin in April.
This will allow companies to make investment and pension recommendations based on what similar groups of people could do with their money.
It still stops short of personalized advice, which can only be provided by a licensed financial advisor for a fee.
Almost one in five people turned to family, friends or social networks for help making financial decisions, according to a survey by the Financial Conduct Authority (FCA).
Sarah Pritchard, deputy chief executive of the FCA, said the new regime would be a “game changer”.
“It means millions of people can get extra help to make better financial decisions,” he said.
“We also hope it will lead to greater confidence in investing. While investing won’t be suitable for everyone, we know that people in the UK invest less compared to the EU or the US.”
Investing money is not an option for millions of people. The regulator said one in 10 people had no cash savings, and another 21% had less than £1,000 to fall back on in an emergency.
However, FCA data suggested that around seven million UK adults with £10,000 or more in cash savings could receive better returns through investment.
Investing carries some risk, as the value of an investment can rise or fall, but the purchasing power of cash savings can be eroded by rising prices.
The regulator said many consumers who were in a position to invest but decided not to because they were unsure of their options, felt overwhelmed or needed more support. Only 9% of respondents received regulated advice on their pensions and investments in the 12 months to May 2024.
Targeted support aims to bridge the gap between general guidance and information and fee-based financial advisors.
For example, banks could explain how a large amount of cash savings could be invested or how investments could be spread out to reduce risk.
Ms Pritchard told the BBC’s Today program that this was not about providing expensive financial advice tailored to an individual, but rather suggestions based on people’s circumstances and characteristics.
“It is important for consumers to understand what it is and what it is not, and this is not detailed advice,” he said.
And unlike detailed financial advice, Pritchard said this targeted support should be free.
“The commission is prohibited, [and] “We expect that the majority of companies that offer it, subject to our regulation, will do so free of charge to consumers,” he said.
Yvonne Braun, policy director at the Association of British Insurers, said: “The FCA’s new rules mark a significant step towards closing the advice gap and will empower millions.”
Colleen McHugh, a consultant at investment platform Wealthify, said the changes were “long overdue” as there was “something wrong” with the fact that fewer people in the UK invest in stocks and shares compared to other countries.
Throughout his career, McHugh said he had noticed that women also tended to be a little more risk averse.
“[It] “It means we are more likely to keep our allocated savings in cash, which again, in the long term, is just not a great financial decision at all,” he told the BBC’s Wake up to Money programme.
“I think this will really give us a little push in the right direction.”
Some consumer groups have made clear that the new rules should not be a way for companies to exploit customers.
Deputy Editor of Which? Sam Richardson said cash savings would be eroded by inflation over time, while investing can increase savings in real terms.
“If this gets people to start investing, as long as they are recommended products that are actually decent value and appropriate for their needs, then we would appreciate it,” he told the Today show.
However, he said people should not be forced to take more risks.
“What worries us most is that if companies make inappropriate recommendations to clients and it is their first time investing, that can discourage them,” he said.
“That’s why we want the regulator to monitor companies to check that these recommendations are really working for customers.”
The FCA said firms taking part would need to be authorized in advance. They could include banks, building societies, investment platforms and digital wallet providers.
They would also be required to demonstrate that their recommendations are appropriate and should only be offered where they put people in a better position, the regulator said. Any client vulnerabilities should be identified and taken into account.
Consumers will have the right to bring any dispute that arises to the independent financial ombudsman.
There will also be a measure to allow people to make more informed decisions with their pensions.
The regulator’s new rules will require legislation, but the government has set a clear goal to encourage people to invest. The Treasury believes this will help generate economic growth.
It was one of the reasons for Chancellor Rachel Reeves’ decision to cut the annual allowance for cash Isas (Individual Savings Accounts) from £20,000 to £12,000 a year for under-65s, from April 2027.
Separately, the FCA has launched a “company checker” tool to help prevent people from losing money to fraudsters through investment scams.
