FRE1 · Industry, Regulation and Key Parties
LO2 is where FRE1 starts to look like advice. Most questions give you a client (a 26-year-old with a bonus, a self-employed father, a widow who seems confused, a couple saving a deposit) and ask what comes first, which product does the job, or which Consumer Duty outcome a firm is failing. Two skills win the marks. First, put needs in the right order: budget, emergency fund, expensive debt, protection, then saving and investing. Second, match each product to its function and its numbers: ISA and Lifetime ISA limits for 2026/27, the FSCS £120,000 limit, deferred periods and relief at source.
12 min read7 sections
Checked against: Walbrook (formerly LIBF) FSRE specification v7 (July 2026), FRE1 LO2 (AC2.1-2.2); FCA Handbook PRIN 2.1.1R and PRIN 2A (Consumer Duty); FCA FG21/1; gov.uk Individual Savings Accounts and Lifetime ISA pages; gov.uk Statutory Sick Pay rates 2026/27; FSCS compensation limits (fscs.org.uk); Finance Act 2022 s10; Pensions Act 2008 and 2014; Administration of Estates Act 1925 s46; checked 11 Oct 2026. Independent prep, not endorsed by Walbrook (formerly LIBF).
Needs-based advice starts with the budget, because it shows what the client can afford and where the money goes (FRE1 LO2 AC2.2). Then work through the needs in a sensible order:
Time horizon decides where money sits. A deposit needed in 18 months that cannot shrink belongs in cash, not equities, commodities or a pension. Money for 15 years or more can take investment risk, but only if the client has both the tolerance and the capacity for loss (COBS 9.2).
| Life stage | Typical priorities |
|---|---|
| First job, no dependants | Budgeting, small emergency fund, avoiding expensive debt, starting a pension |
| Buying a first home | Affordability, credit history, deposit, buildings insurance, protection |
| Young family with a mortgage | Life cover, income protection, wills, household budget |
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| Approaching retirement | Turning savings into income, estate planning, long-term care |
Trap: jumping to the 'growth' answer. A client with no emergency fund or with expensive debt is not ready to invest, however long the horizon.
Takeaway: Budget, emergency fund, expensive debt, protection, pension, then investing. Short-term money stays in cash.
Principle 12 says a firm must act to deliver good outcomes for retail customers (PRIN 2.1.1R). It applied from 31 July 2023 to open products and from 31 July 2024 to closed products. PRIN 2A adds three cross-cutting obligations: act in good faith, avoid causing foreseeable harm, and enable and support customers to pursue their financial objectives (PRIN 2A.2). Where the Duty applies, Principles 6 (treat customers fairly) and 7 (clear, fair and not misleading communications) are disapplied; outside its scope they still bite.
| Outcome | What it asks | Scenario that fails it |
|---|---|---|
| Products and services (PRIN 2A.3) | Design for a target market, share it with distributors, act if sales go outside it | A landlord mortgage sold to first-time buyers and the lender does nothing |
| Price and value (PRIN 2A.4) | The price must be reasonable for the benefits | High premiums, wide exclusions, tiny claims acceptance |
| Consumer understanding (PRIN 2A.5) | Communications people can understand and act on | 'Earn up to 6%' when most savers get 2% |
| Consumer support (PRIN 2A.6) | As easy to get help or switch as to buy; no sludge | Payment-holiday requests hidden behind menus and a premium-rate line; online-only support for customers without internet |
The FCA does not pre-approve products. Matching competitors' margins does not prove fair value, and a signed declaration does not make poor value acceptable. Inertia is a known bias, so leaving long-standing customers on a standard variable rate without telling them about cheaper deals risks foreseeable harm.
Trap: picking 'consumer understanding' for every scenario. Ask what is going wrong: the design or the target market, the price, the communication, or the help after the sale.
Takeaway: Principle 12: good outcomes. Four outcomes: products and services, price and value, understanding, support. Principles 6 and 7 cover business outside the Duty.
