The FT look down on the City in this photo.
We’re being scared off doing the right thing in the name of “prudence“. A stronger UK investment culture relied on consumer confidence built on clear and balanced information about rewards and risks, Sarah Pritchard of the FCA said today.
Asset managers have been urged to drop “boilerplate” risk warnings in favour of more balanced explanations of the pros and cons of investing, as the UK government seeks to encourage Britons to be more ambitious with their savings.
Repeatedly telling consumers their “capital is at risk” and they could lose money in financial markets has driven UK households to invest the lowest share of their wealth in equities of any G7 country, according to a new report commissioned by chancellor Rachel Reeves.
The FT tells us that a risk warnings review, to be published today (Thursday), told fund managers to provide customers with
“simple, accessible explanations of how investments can rise and fall, presented alongside relevant benefits and explicit time horizons”.
So far, the report has not been published by the investment Association but it will follow later today! When it’s published, it will sit on this blog as it is part of a change in culture we are finally going through which is really important throughout society.
I am taken back to my days in my early twenties when I was told to encourage clients to get invested for the long term in equities that in the short term might and infact would go down in value in value. That was to balance against short term savings which went (in those days) in the building society.
This was from teachers who had been through the 1970s and the problems society went through , reflected in huge volatility in the markets and the shares that ordinary people (like my family) invested in.
City minister Lucy Rigby said in a preface to the report:
“This is a concrete example of where a culture of too much risk aversion is harming household finances, and it must change.”
Trials that show we could do better without grim warnings.
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Asset manager Vanguard said a recent UK trial using more
“human, educational and balanced” risk disclosures instead of traditional ones seen as “abrupt, fear-inducing and highly technical” reduced the drop-off rate in Isa account opening by 23 per cent.
“Traditional language on risk has often had the opposite of its intended effect,”
said Liz Waldron, Vanguard Europe’s head of product and client experience.
“Rather than helping people make better decisions, it tends to put them off altogether.”
Behaviour can be regulated and can be over-regulated
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The FCA published a clarification of its rules in December to address
“common misconceptions about risk warnings”.
It also said last month that it would launch a review of its financial promotions rules this year, which will examine issues raised by the report published on Thursday.
“Too often risk warnings to potential investors have been driven by what firms think our rules say and established expectations that have built up over time, rather than what works for the intended reader,”
Sarah Pritchard, deputy chief executive of the FCA, said in a preface to the report.
Reuters also hive us a view looking down on the City
How did we get to this state of affairs?
You can read here how Reuters also blast the regulatory over-prudence
It does not come as a surprise to those like me who have lived through many cycles in the market. “Prudence” has become associated with de-risking and de-risking seen as sensible. But there is nothing sensible in becoming the nation with the lowest percentage of savings invested for the long term.
Trustees no longer invest the money in DB pensions, DC pensions de-risk our funds when we’re as “young” as fifty and Cash ISAs win over investment ISAs as a result.
The problems with the lack of investment culture in this country comes from a culture that encourages “de-risking” over growth. This starts in the regulation of pensions. If that changes , so will our individual behaviour .
The cash ISA ( 70bn+) is an even poorer investment cap this and move the funds to a U.K. Stocks and Shares ISA would make an impact
I find the (7 point) risk ratings on investment funds misleading. A lower risk rating generally means that, over time, there is a greater risk that funds with a lower rating will perform worse than funds with a higher rating.
The problem throughout the UK investment culture, whether that be in pensions (occupational or personal), ISAs, or other long term savings vehicles is that risks (usually short term) are over-emphasised compared to the opportunities.
The most outrageous case is the demise of DB pensions where the legislative and regulatory background is entirely focused on failure and ignores the potential contribution that investment returns will make over the longer term. If you told employer sponsors in 2021 that they could expect to achieve an investment return of between 6% and 8% p.a. over 5, 10, or 15 years (which is what has consistently been achieved by an appropriately invested fund), they would say “but the Pensions Regulator expects us to lose 2% p.a. over the duration of the liabilities and is forcing us to divert resources from our productive enterprises”.
I am off to invest my £20K annual ISA allowance, where my self select stocks and shares ISA has achieved a net investment return of 7.9% p.a. over the past 29 years and my other ISA fund using an asset manager has achieved 7.6% p.a. over 24 years. My passively invested in equities SIPP has achieved a net investment return of 9.47% over 10 years, partly due to minimal management charges (currently 0.23% p.a.). All measures are to the 31st March 2026 and reflect the headline making market conditions at that date.
I am fortunate because of my background and experience I am able to perform these calculations for myself and I am able to devote some time each day to the management of my investments (which is almost entirely on a buy and maintain basis). I do pity the novice investor faced with the barrage of risk disclosures blinding them to the opportunities of long term investing.
The Scots would say “nae wise” of someone acting without sense — which fits much of today’s investment orthodoxy.
PensionsOldie, meanwhile, shows what real wisdom looks like: steady, high single-digit returns earned with patience, not adrenaline.
Prudent trustees once managed investments sensibly for income and stability.
Then came the accountants, actuaries, bankers, and regulators — my own former profession among them — who turned “prudence” into paperwork.
“De-risking” became a gospel of caution, assuming unmet income requirements could be replaced later with new capital.
A strange kind of prudence that values process over outcome.
True prudence — foresight and good judgement — has been lost in a shuffle between compliance documentation and fanciful modelling.
We call it safety, but it’s often cowardice.
Modern Portfolio Theory sealed the deal. Clever maths, yes — but its advocates turned “risk” into statistics and forgot about context, behaviour, and purpose.
Diversification and risk-adjusted returns became ritual, not reason.
We’ve risk-adjusted ourselves into mediocrity.
Real prudence demands courage: the willingness to act wisely, not hide behind models and red tape. That’s what the old prudent trustees understood — and what most of us seem to have forgotten in this age of “risk management.”
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