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 .
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I may be thought of as jumping horses in the midst of the race. This idea of Punter Southall’s was an idea I was promoting with Pension Superfund for some years. The Pension Superfund has run its course but not the idea.
