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UK watchdog launches campaign to discourage hoarding cash

Financial Conduct Authority UK updates

The Financial Conduct Authority has launched a push to encourage 1.7m people in the UK to invest their money by 2025 after the regulator said too many savers were missing out on wealth creation by holding excessive cash. 

The FCA said on Wednesday it was targeting about a fifth of the estimated 8.6m Britons with more than £10,000 in cash who face having the value of their savings eroded.

“Many consumers who might gain from investing currently hold their savings in cash. Over time, these consumers are at risk of having the purchasing power of their money eroded by inflation,” the watchdog said.

The move is part of a wider strategy that is also aimed at reducing the number of retail investors taking excessive risks and being targeted by fraud. The FCA said too many first-time investors have started dabbling in high risk investments, such as cryptocurrencies.

The problems have been exacerbated by the coronavirus pandemic, which has seen people flock to the market in record numbers after accumulating extra cash, drawn in by the rise in easy-to-use trading apps.

The effort will include an £11m marketing campaign to warn about high risk investments, and tightening the rules around advertising these products. 

“The regulator is taking a two-prong approach — on the one-hand trying to get more people to invest their money rather than leave it in cash and on the other trying to shield inexperienced investors from risky investments,” said Laura Suter, head of personal finance at AJ Bell.

User-friendly trading apps, which saw at least 1m new sign-ups in the first four months of this year, have helped to make investing more accessible, the FCA said. But it cautioned that the jump in new customers triggered by the start of the “memestock” craze in January suggested that the “lack of friction” on apps “makes it easier for consumers to make bad decisions”. 

The FCA said it aims to cut the number of retail investors taking too much risk by half by 2025, and will publish statistics to track its progress towards this goal and the other targets in its new strategy. 

The UK financial watchdog also said it would step up efforts to block investment fraud, which has surged during the pandemic. Reported scams cost consumers £570m in the year to March, a three-fold increase from 2018, according to Action Fraud.

The agency’s fresh emphasis on encouraging more people to invest is aimed at addressing longstanding concerns in the investment industry that customers underrate the losses they suffer by not taking enough risk. 

“The FCA’s approach of identifying the right and wrong kinds of risk is helpful. It recognises the ironic risk to financial wellbeing from being too risk averse and retreating to cash, [and] so missing out on returns,” said Becky O’Connor, head of pensions and savings at Interactive Investor. 

The regulator said it would consider rule change to make it easier for firms to offer customers “more help to invest in relatively straightforward products” as part of the move to attract cash-rich savers to invest.

If successful, AJ Bell estimated the move would bring at least £17bn into the retail investment sector, where investing platforms and retail funds have already recorded bumper results thanks to the pandemic boom. 

Sushil Kuner, principal associate at law firm, Gowling WLG, welcomed the initiative, but urged the watchdog to do more to ensure retail investors could access formal financial advice.

He blamed the “advice gap” on a ban in 2012 by the FCA’s predecessor, the Financial Services Authority, on firms charging commission for retail investment advice after a review of the sector. According to the FCA, only 8 per cent of UK adults receive formal advice.

“One of the unintended consequences of the [review] was that large groups of consumers were left without financial advice. The FCA’s proposals are therefore very welcome in raising awareness and ensuring that consumers are investing in the right products for them. However, perhaps more efforts could be made to try and address the ‘advice gap’,” Kuner said.

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