Many consumers holding money in cash rather than investing it – FCA

Many consumers are holding money in cash that could instead be invested to provide potentially higher returns, according to the City regulator.

Some have not sought or received the assistance with their finances that would help them to make better investment decisions, the Financial Conduct Authority (FCA) said.

The FCA made the comments as it published an evaluation of the impact of efforts improve the mass market for consumer investments.

The evaluation report said: “In summary, we found that, on the whole, the financial advice market is improving, albeit slowly.

“However, we also found that many consumers are holding their money in cash rather than investing it, so are missing out on the potential opportunity to make their money work better for them in the longer term.

“Many consumers do not seek, or receive, the sort of help with their finances that would equip them to make better investment decisions.”

The Retail Distribution Review (RDR) aimed to establish a resilient and attractive retail investment market that consumers had confidence in and trusted.

Another initiative, the Financial Advice Market Review (FAMR), was intended to make the UK’s financial advice market work better for consumers.

The FCA’s evaluation found evidence of some improvements in the market since the conclusion of FAMR – with around 8% of UK adults having now received financial advice, up from 6% in 2017.

The creation of the FCA’s advice unit has also helped firms to develop new automated advice models, the regulator said.

It added that the industry offers a range of services, but there is significant clustering around certain service types and price points.

More innovation and simpler advice services could help, it added.

Sheldon Mills, the FCA’s interim executive director of strategy and competition, said: “We want consumers to have access to high-quality advice and guidance at the right time in their lives, to give them the confidence to make better investment decisions.

“Our evaluation has found the advice and guidance market is moving in the right direction, but still has further to go. We will play our role to support the market to improve further, in the interest of more consumers.”

Laith Khalaf, financial analyst, at AJ Bell said: “There will always be people who need and want financial advice and specific situations where taking advice is crucial or even mandated, for instance where savers are considering switching out of a final salary pension scheme.

“But some people don’t want or can’t afford advice and for them a little bit of time and research can yield valuable long term results.”

He added: “There is a longstanding challenge here to wean consumers off cash and into thinking about putting long term savings into the market.

“The familiarity of cash is hard to overcome with something as comparatively ephemeral as the stock market.”

Nathan Long, interim head of policy, Hargreaves Lansdown, said: “People require different levels of help with their finances throughout their life. Some may just need to be pointed in the direction of some helpful information, particularly when they’re starting out.

“Others may prefer to pay a fee for a personalised recommendation, especially when their circumstances become complicated. The level of help someone gets should be their choice, not determined by the ambiguity as to what the financial services industry understands to be ‘advice’ and ‘guidance’.”

He added: “The way forward is through a combination of making advice more accessible, but more importantly through innovation in the delivery of information to people to help them acquire knowledge as they go.”

Yvonne Braun, director of long-term savings and protection at the Association of British Insurers said: “The advice and guidance regulatory boundary needs to be shifted to enable customers to get advice that is simpler and more affordable, and guidance that offers more help.

“The UK will shortly no longer be bound by EU rules, so now is the time for UK authorities to seize opportunities to design regulations that work for UK consumers by enabling more affordable advice and more meaningful guidance. The FCA’s new piece of work on the consumer investments market is a good place to start.”

Clare Moffat, head of development and technical team at Royal London, said: “Many people do not believe they are wealthy enough to take financial advice, or they believe they are going to get the hard sell.

“We need to tackle these myths if we are to stimulate access to advice for more people. Taking financial advice can help people make good decisions and ensure they aren’t doing things like holding too much cash or investing inappropriately.”