Savers risk missing out on long-term investment earnings through a lack of industry support, according to a new strategy from the Financial Conduct Authority.
Nearly 8.6 million people currently hold more than £10,000 investable assets in cash, with half potentially benefiting from investing, the regulator said.
As part of its consumer strategy published on Wednesday, the FCA is targeting a 20% reduction in the number of consumers with a higher risk tolerance holding over £10,000 in cash. If 1.7 million people invested £10,000 in the stock market, it would represent a £17 billion influx of money to the investment market, says Laura Suter, head of personal finance at AJ Bell.
Suter said: “The pandemic has boosted lots of people’s saving pots but most of its is idling in current accounts getting paltry returns when in reality much of it could be invested. The issue is that lots of these people feel unable or ill-equipped to start investing.
“For many of these individuals investing is a logical route, as they don’t need the safety of cash or immediate access to their money but it’s often a job on the to-do list that people don’t get around to. Anything the regulator can do to make taking that leap into the stock market for the first time easier and to allow providers to offer more hand-holding should be applauded.”
The FCA is also embarking on a £11 million campaign to shield inexperienced investors from risky investments and crack down on the number of investors losing money to scams.
The FCA’s figures show that 6% of UK adults have invested in high-risk investment for the first time or increased their stakes during the pandemic, despite nearly half of people believing they can’t lose money on investments.
In response, the FCA plans to cut the number of consumers investing in high risk investments who have a low risk tolerance or display characteristics of vulnerability in half by 2025.
Heather Owen, financial planning expert at Quilter, commented: “There is a dichotomy in consumer investment markets. Many savers view investments as far too risky and flee to what they believe is the safe haven of cash. But there is also a new breed of often younger investors who may have had additional savings during the pandemic and have chosen to pile these newfound funds into high-risk investments.
“The answer to improving both the access to investments and how they are used is to reach more with advice and improve access to financial guidance. The UK’s advice gap has led to consumers making choices that are unsuitable for their needs or disengaging from their finances and making no choices at all. At present only 8% of the nation has received financial advice, which is worrying when it can have such a dramatic impact on someone’s financial life.”
The FCA has said that accessing the right support is crucial, with nearly half (49%) of consumers who had not received support in the last year holding all their investible assets in cash, compared to a quarter (25%) of those who had. Only 8% of all UK adults have received financial advice and robo-advice is failing to fill this gap, with only 1.3% of adults using this form of advice in 2020.
The FCA also warned that consumers are losing significant sums of money to investment fraud and scams. Some 23,378 consumers reported they lost an estimated £569 million to investment fraud from April 2020 to March 2021 – an almost threefold increase since 2018. On average, consumers lost over £24,000 each.