The UK investment regulator, the Financial Conduct Authority, suggests relaxing sales rules for £90bn in consumer savings to be switched to assets it regulates.
The FCA has spotted nearly nine million people holding cash of £10,000 or more, which it describes as “investable assets” (money that could be switched to regulated investments). They suggest that holding cash is a bad thing, and consumers would be far better off holding assets it regulates. They think that relaxing rules to protect consumers from unscrupulous investment salespeople will result in better outcomes for consumers. I’m not so sure.
We could be looking at a red-herring here. According to ONS, financial assets are 13% of the total wealth of Britain. Split 8% short-term (savings), 5% long-term (investments). Excludes business assets (how money is made). What’s wrong with this mix?
You’ve got to ask, why is this even on the agenda? Given spotlights elsewhere at the FCA. Could it be because there’s a conflict of interest?
Eighteen months ago, the FCA said:
“Too often consumers leave their savings in cash because they don’t have confidence in the alternatives. That’s why we have made Consumer Investments a priority in our current Business Plan. The overwhelming majority of retail investors are best served by readily understood, well-diversified and low-cost investments which are already available from a range of providers, but many retail investors don’t choose these.”
Twelve months later, the FCA suggests that investment availability or access were an issue. The conclusion was either that or consumers were fools.
“We take the view that many of them simply do so because they are either unable to access an investment product or are unwilling to do so. The reasons behind this are behavioural but they are also clearly a function of a lack of knowledge.”
Access isn’t an issue. Investments are easy to buy, and consumers are no fools.
Could these be genuine emergency funds earmarked adequately for the upcoming crisis in living standards? Could this be an asset that needs to be accessible in the next five years, short-term? What’s to suggest that consumers are mistaken?
While moving surplus assets (money not required in the short-term) to investments mitigates inflationary pressure, there’s a host of reasons why cash is good. And, while the investment industry, including the regulator, feed on a percentage of funds under management, they shouldn’t be the ones calling the shots on relaxing rules put there to protect people.
Could it be that consumers are suspicious and distrusting? Maybe rightly so.
Did the retail distribution review a decade ago cause savers not to invest? The advisers of today have always served higher net worth investors. Nothing has changed here. The advisers to the lower net worth disappeared, as they were unable to demonstrate value for money.
The bancassurance advisers disappeared, and a decade earlier, the home service advisers disappeared. Seven in ten adults stopped having an investment conversation because the fees charged were disproportionately high than the sums saved. Was this such a bad thing?
Maybe it’s the wealthy pensioners? According to ONS, one-third of the adult population are over age 55 yet own two-thirds of the wealth. All that boomer wealth in drawdown sits in higher proportions in short-term assets. Gen XYZ has little or no savings, and a higher proportion needs to be in cash to navigate the cost-of-living crisis. This dynamic would skew financial asset holdings in favour of cash deposits. The split would favour investments if wealth distribution were the other way around.
Is B2C fintech even addressing the correct issues? The industry explores using technology to shift the savings (money already made) to investments (long-stay parking). With little regard to helping consumers with little or no savings make money in the first instance.
When you have little money, twice as much can make you twice as happy.
When you have little in the way of savings, taking it away and locking it in long-term investment products makes consumers twice as sad.
Recommending that assets be shifted is expensive. Coaching on the options for shifting assets less so. Robo-advice to shift assets can be made available fee-free. All this advice on shifting assets. Where’s the advice on making assets? It doesn’t exist.
Why should the consumer shift assets to other people anyway? Why can’t they be allowed to possess their assets? Invest in themselves, and make money?
I understand that inflation erodes short-term assets. I also understand that short-term assets are essential in times of crisis. I also understand that the industry pays itself on long-term assets. There are a lot of decision-makers with their fingers in the pie here.
The industry calls consumers fools. It looks as though the outcome will be the investment industry empowers itself to nudge people towards itself.
What kind of fools do you take us for?