Investment advice could help financial inclusion
I’ve spoken before about fairness and financial inclusion; how smaller savers are disadvantaged by complex investment products with high minimum savings requirements that make them inaccessible. But there’s another angle to consider – the lack of guidance or advice available for inexperienced investors to give them the confidence they need to be able to invest in the stock market.
With a gloomy economic forecast for 2022, ordinary families are seeing the real value of their savings crushed by low interest rates and even higher inflation which is expected to exceed 7%. For those who can’t afford the expertise of an adviser or wealth manager, saving in cash might seem the simplest and least stressful option. But this means that the very people who are set to lose the most right now are those that can least afford it.
They need support from the financial services industry. Support that, at the moment, isn’t readily available due to the current application of rules on advice and guidance combined with an aversion to risk by providers. Anyone can provide ‘guidance’ which, according to the FCA’s webpage, can “…help you understand the different investment options before you decide for yourself how to invest your money.” However, this guidance can’t stretch to a recommendation on what the customer should do, since that necessitates undertaking a full review of their finances to understand the whole picture.
The FCA would argue that their rules aren’t restricting the industry from providing customers with the support they need, but it’s a bit of a grey area. In practice, when the rules are applied, they lead to more restrictions than were originally intended. So, even in simple situations, providers often won’t give customers a nudge in the right direction for fear that they might cross the line from ‘guidance’ to ‘advice’. They’re understandably worried about the financial consequences of getting it wrong and ultimately this doesn’t help the investor.
However, there have been some recent suggestions in the financial press that this could be about to change. The Government might be considering consulting on this issue to enable clarity around the boundaries of what constitutes advice. Being able to explain how investments work, the risks and benefits along with a recommendation that’s tailored to the customer’s circumstances, would mean that providers could engage better with and help first-time or inexperienced investors.
This could be just the step change that’s needed to boost smaller savers’ confidence and enable a move towards financial inclusion. Why should the less well-off lose out on the opportunity to invest in the stock market and track the prosperity of the country, thereby reducing the impact of inflation on their savings?
My feeling is that the key to democratising investment is going to be a combination of education and a collective will to remove the binary of those who can afford advice and those who can’t. It’s an area that needs the Government and the financial services industry to work together if we’re really going to level up financial opportunity. By allowing providers to give personalised and specific guidance to their customers we could pull back the curtain of mystery and fear that surrounds investment to allow fairness of access to the stock market.
Teddy is a strong supporter of diversity, inclusion and equality. A passionate believer in social mobility and financial inclusion; he is using his position as CEO of OneFamily to help the young, the disadvantaged and the marginalised to reach beyond their expectations. His view is that everyone in society should have the same opportunities to access financial products – regardless of their wealth.
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