InvestmentsSep 15 2021

9m consumers hold investible assets in cash, FCA warns

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9m consumers hold investible assets in cash, FCA warns
AP Photo/Jenny Kane, File

The pledge is part of the financial watchdog's consumer investments strategy, out today (September 15), which aims to “tackle investment harm”.

With 8.6m consumers holding more than ÂŁ10,000 of investible assets in cash despite having higher risk tolerances, the FCA intends to drive this number down by a fifth come 2025.

It reasoned that this demographic is losing out on returns because they hold “higher risk tolerance[s]” which aren’t being utilised.

As part of this strategy the regulator is “exploring regulatory changes” to its guidance rules, with a view to giving firms more freedom to support investors when it comes to straightforward products such as Isas and tracker funds. 

“To be successful, [the FCA’s strategy] will need to help people better understand the risks as well as their own risk appetite, the protections that are in place whilst also helping people avoid scams,” said Kate Smith, head of pensions at Aegon.

“Far too many people miss out on the returns offered by investing sensibly for the long-term with the perception that investments are for other people or the natural instinct of loss aversion proving a real barrier. 

“However, the reality is that having all your savings in cash carries its own risks as we’ve seen with inflation figures this week.”

Inflation hit 3.2 per cent last month, up from 2 per cent in July - the largest recorded increase. With interest rates being low investors face serious threats to their savings.

At the same time as helping those with investible cash assets, the FCA also wants to prevent consumers investing more than they can feasibly afford.

By 2025, it intends to have reached a 50 per cent reduction in the number of consumers investing in high risk investments “who indicate a low risk tolerance or demonstrate the characteristics of vulnerability”.

According to the FCA, 6 per cent of consumers increased their holdings of higher risk investments during the pandemic. But as many as 45 per cent of non-advised investors failed to recognise that ‘losing some money’ is a risk of investing.

Elsewhere the FCA outlined a reduction of losses to investment scams perpetrated or facilitated by regulated firms. 

The latest figures show consumers lost nearly ÂŁ570m to investment fraud between 2020 and 2021, tripling since 2018.

“The eye watering sums lost to investment scams is simply staggering,” said Andrew Tully, technical director, Canada Life.

“Despite the public message campaigns and the ban on cold-calling, the scammers are either simply ignoring the law or using increasingly sophisticated ways of finding convincing ways to con people.”

Alongside this, the regulator said it will stabilise the ÂŁ833m compensation bill for the Financial Services Compensation Scheme, as well as target a year-on-year reduction in the Life Distribution and Investment Intermediation (LDII) funding classes from 2025 to 2030.

Read more on today's strategy paper:

FCA explains 10-year FSCS levy strategy

PII: FCA mulls third party audits for advisers

FCA considers tweaking guidance rules

FCA targets 10% annual drop in FSCS levies from 2025

FCA to tighten grip on principal firms

ruby.hinchliffe@ft.com