Encouraging a stronger retail investing market in the UK is important both for the economy and for individual financial empowerment. But the FCA’s own data shows people with savings opting to hold more, not less, cash, in recent years. While there has been extensive exploration of the barriers to investing, there has been less direct market testing of potential public policy solutions that might overcome the barriers from a consumer standpoint.
Barclays therefore conducted market research with members of the UK public who hold cash savings in excess of six months’ income, to explore the following research question: What public policy changes would help empower retail savers in the UK to engage with investing?
From this research, we make five specific public policy recommendations that we believe, if enacted, would help address the market failures that prevent consumers from doing so.
Our approach
We conducted qualitative research with UK consumers aged 18-65 who had cash savings of at least six months’ worth of take-home pay (considered a conservative proxy for a prudent emergency fund), split across three key segments based on individuals’ current level of engagement with investing. As part of this research, we tested six policy territories with participants, aimed at encouraging greater engagement.
Following this qualitative exploration, we conducted a quantitative survey through the research agency Savanta. The survey was completed by a UK nationally representative sample of 2,011 people, of whom 668 were identified as having cash savings worth at least six months’ take-home pay – with our analysis focusing on the latter.
Our findings
Our analysis of the results suggests two broad barriers that inhibit savers from engaging with investing:
- A difficulty on the part of consumers in identifying the type of financial investment product that may suit their financial objectives.
- The inability to make simple side-by-side comparisons of specific products within an investment type.
When testing specific policy solutions, we found that:
- Tax incentives and new products do not seem to be a hook for non-investors to engage with, or start, investing
- Consumers triangulate multiple sources when it comes to information on investing, and there is a role for government and their bank as part of the mix.
- Personalised online tools are widely welcomed to simplify decision-making.
- Savers value agency in decision-making and want to be able to compare individual investment products.
- Investment labels appeal as a way to identify products meeting their risk tolerance, and their level of knowledge about investing.
Policy recommendations
We used these insights to draw out five specific public policy recommendations:
Recommendation 1 - FCA badge to identify entry-level investment products that meet specific diversification/asset allocation criteria: To support new investors in identifying products that may suit their financial objectives, the FCA should develop a ‘badge’ for one or more entry-level investment product types that firms could use if their offering meets a specific set of diversification and asset allocation criteria suitable for that intended market of less experienced investors.
These criteria would be developed in consultation with industry and consumer groups and should be narrow enough for ‘badged’ products to be considered comparable, but broad enough to enable innovation.
Recommendation 2 - Simpler sign-up journey for entry-level investments: It follows from recommendation 1 that ‘badged’ products are, by design, suitable for entry-level or novice investors. Our research shows that potential investors are strongly attracted to the concept of investing being easy. To make investing in one of these ‘badged’ products easier, and alongside the new UK Retail Disclosure Regime, the FCA should therefore ensure a simpler sign-up journey for investments into ‘badged’ products. This would reduce some of the current frictions in the sign-up journey in terms of declarations, risk warnings and product documentation for entry-level investors.
Recommendation 3 - Regulatory changes to enable firms to suggest investment actions to customers with large cash balances, based on “people like you” personas: In order to further support consumers in identifying the type of financial investment product that may suit them, government and FCA should alter the regulatory framework for the provision of financial guidance to enable (regulated) private sector firms to suggest investment actions or products to any of their own customers whom are identified as holding significantly more cash than would be expected for an emergency fund.
This new regulatory framework should explicitly permit consumer-facing guidance based on generic personas such as “people like you would benefit from X”. The easiest way to do this would be as an example of permissible activity within the scope of the ‘Targeted Support’ option (option 2) as part of the ongoing review by the government and FCA of the Advice Guidance Boundary.
Recommendation 4 - Online tool and investment guidance from MaPS: Similarly, and in parallel, the Money and Pensions Service (MaPS) should place a renewed focus on providing public-facing generic investment guidance through its MoneyHelper brand, to include an online tool that guides individuals to the broad set of financial investment products which they may wish to consider.
Recommendation 5 - The development of comparison tables for entry-level investment products: Bringing this together, government should also adopt an explicit policy aim to monitor and spur the development of easily accessible comparison tables for entry-level ‘badged’ financial investment products, so that consumers can make side-to-side comparisons through best-buy tables.
About the author
Barclays’ Group Policy Development team creates public policy thought leadership content on behalf of Barclays. Our work draws on the bank’s expertise, data and insights, and is intended to inform the design and application of public policy solutions in response to pressing economic and societal challenges.
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