Stop saving, start investing

The Financial Conduct Authority (FCA) has announced plans for reforms expected to transform the landscape of financial advice in the UK. “Targeted support" will allow financial services platforms, such as AJ Bell or Hargreaves Lansdown, to provide general investment advice to consumers, without triggering the need for extensive compliance obligations and suitability assessments. The reforms aim to encourage more investment from the UK public. Under the new model, financial services firms could advise clients to consider putting some of their savings to work via equity investment. 

The need is pressing, with the FCA reporting that only 9% of UK adults received financial advice in the past year. Furthermore, a staggering seven million adults are holding over £10,000 each in idle cash savings. In total, some £430 billion lies dormant in cash among 13 million adults. This has been an age-old problem in the UK, with a general lack of understanding of equity markets leading much of the population to fear investment, which they view as overly risky and uncertain. Ironically, however, it is almost a certainty that a broad, well-balanced basket of stocks will greatly outperform cash savings over the longer-term. 

According to AJ Bell, if a person had invested £1,000 across global markets (the greatest possible diversification) every year since ISAs were first introduced (30 April 1999 to 31 December 2024) they would have gained an additional £56,600 against just £8,400 for saving, approximately seven times the amount. Things get even worse when adjusting for inflation, with the £26,000 paid in needing to have turned into £39,000 to have kept up with rising prices. Therefore, cash savers would have reduced their buying power to the tune of £4,600, against a £43,600 gain for investors. Had the full ISA allowance been taken advantage of since introduction, meaning payments in of £329,560, then extrapolating the numbers above would mean the investor would be roughly £600,000 better off than the saver, having adjusted for inflation, and presumably looking forward to a far more comfortable retirement.  

By December 2025, the FCA will consult on formal rules to govern this new activity, with a full roll-out expected by April 2026. Around 100 firms are expected to launch these services, many of which will be at no cost to consumers, with revenues expected to come from increased retail trading. Additional reform entitled “simplified advice” is also in development, which will permit firms to suggest products after reviewing only the essential facts of a customer’s situation, further dismantling regulatory barriers that have historically limited access to advice.

The reforms are in response to growing criticisms from financial institutions and consumer advocates, who believe the existing rigid framework has left too many of us unserved for too long. It remains to be seen, however, whether the reforms will lead to notable changes in behaviour amongst UK savers or if we are all too stuck in our ways. A welcome next step could be to begin teaching financial literacy in our schools. This would help ensure future generations of Britons embrace investment and the opportunities it provides for them to increase their wealth, whilst providing much-needed growth capital for listed businesses.