Similar to the medical profession and its patients, it is incumbent on financial services providers to do no harm to their clients.
But people are sometimes harmed by their investment experiences through fraud and scams, failed advice businesses or from being persuaded to invest in high-risk investments that are not in their best interests.
Also, some ‘self-directed’ investors make choices that may not be suitable for their needs. The outcomes can be serious, causing significant loss and hardship to the consumer. It is a problem for all involved, including advisers, who pick up the tab through Financial Services Compensation Scheme levies for poor advice or when companies go under.
The Financial Conduct Authority is looking to tackle this with the publication of its consumer investments: strategy and feedback statement.
According to the FCA, the consumer investments market accounts for £1.6tn held or invested by consumers through more than 6,000 wealth managers, advisers and platforms. So, the stakes are high.
And the problems are not going unnoticed. Duncan Glassey, founder of WealthFlow, says: “Investment harm remains a huge problem. We frequently see new clients with investments wholly unsuitable for them.
“Clients who in their day-to-day lives are fundamentally risk-averse are still being sold investment products and portfolios comprised of highly concentrated, poorly constructed, expensive equity funds, which is unacceptable.”
One of the main objectives of the FCA's strategy is to reduce the number of people falling prey to scammers or being arm-twisted into investing in products too risky for their requirements.
Another is to give consumers the confidence to invest, in an advice market that is both high-quality and affordable.
Sarah Pritchard, executive director of markets at the FCA, says: “We want to give consumers greater confidence to invest and to help them do so safely. We also want to be able to adapt more rapidly to the changing market and be assertive where we see poor conduct and consumer harm.”
The regulator has set itself ambitious targets to be achieved by 2025. It wants to slash by 20 per cent the number of people holding more than £10,000 investible assets in cash, which could be earning a return elsewhere. It reports that there are currently more than 8m people in this category.
Pandemic fallout is to be addressed too. The FCA noted that 6 per cent of consumers increased their holdings of higher-risk investments during the pandemic and that nearly half of self-directed investors (45 per cent) said they did not realise the risks. It therefore wants to halve the number of people investing in higher-risk products that are not aligned to their requirements. The regulator has already banned mass marketing of speculative mini-bonds.
Looking at the information consumers need, Sally Plant, head of financial planning at the Chartered Institute for Securities and Investment, comments: “The focus should include promotion of regulated advisory firms to consumers, not just banning sales and marketing of higher-risk products.”