In a report, titled The keys to unlocking greater investment in stocks and shares Isa, it found that while information exists around stocks and shares Isas and the savings options that consumers have, over 70 per cent do not even consider savings in an Isa.
One of the key reasons was that people thought the product was not for ‘people like me’.
Tisa said prompting more people to consider these Isas could result in several benefits, such as facilitating levelling up across disadvantaged areas, reducing the gender gap and facilitating social mobility.
Among people who considered investing in stocks and shares Isas, perceived riskiness is the strongest barrier to investing.
People who have not invested in an Isa perceive the chance of making a loss over a 10-year period in equity markets to be over 30 per cent, whereas the historic probability of realising a loss from investing in the FTSE 100 over a 10 year period is 3.5 per cent, it explained.
The research found over a quarter of people with at least £5,000 in a bank account intend to withdraw their savings after five or more years, with a significant portion of savers also saying they were planning on holding their savings for 10 or more years.
For many people, choosing a stocks and shares ISA wrapper and underlying investments is unchartered territory and they need help to make informed decisions that suit their long-term interests. Prakash Chandramohan, TisaThese customers could make a higher return investing in stocks and shares Isas, and possibly do not realise that their inflation means their current method of investment may be depreciating in real terms.
“Firms ought to be enabled to deliver personalised guidance that: explains the risks of holding too much cash; encourages affected people to act; and helps those people choose an appropriate investment,” Tisa said in the report.
Given that low engagement is the major problem, it urged the government to review the legislative framework around the prompts, nudges, alerts, and suggestions that firms are currently not allowed to deliver to unadvised people as financial guidance.
Prakash Chandramohan, strategic policy director at Tisa, said: “Consumers need personalised guidance and tools that make information about investments and stocks and shares Isas more accessible and digestible to them.
“For many people, choosing a stocks and shares Isa wrapper and underlying investments is unchartered territory and they need help to make informed decisions that suit their long-term interests.
“The lack of engagement in stocks and shares Isas is a clear example that firms need the legislative environment and regulatory tools to communicate with consumers in a savvier manner. “
Everyone has a role to play here, including us, to ensure that savings and investing is accessible to all and recognising that a one size fits all approach to communications does not work. Chris Hill, Hargreaves LansdownChandramohan said firms ought to be able to issue prompts, nudges, alerts and suggestions that guide consumers to make sensible investment decisions.
“We welcome the intention to review the UK’s advice-guidance boundary to look for a solution that will better meet the needs of UK households,” he added.
The research found that consumers who have not purchased a stocks and shares Isa find it time consuming, difficult, and complicated to find information about how, where, and why to invest.
Those who have got one said they found the process straightforward and easy, but time consuming.
Tisa said this suggests the industry can do better to make the journey clearer, simpler, and more convenient.
Chris Hill, chief executive officer at Hargreaves Lansdown, said: “We welcome the report findings, particularly the call to review the advice boundary which is a significant barrier to our ability to help engage consumers and guide them towards better outcomes.
“Whether it is pointing clients to a lower cost index tracking option or reducing the risk that clients run out of pensions savings too soon, there’s a bigger role firms can play supporting their clients.”
What is the FCA doing?
In a speech by the Financial Conduct Authority’s executive director Sarah Pritchard in September, the regulator said it will make sure that it does what is best for the UK, retaining market integrity and protecting consumers.
She said one area the FCA is looking at “transforming is the advice and guidance rules”.
At the time, industry members welcomed the regulator’s review of the advice-guidance boundaries and urged for it to “push forward at pace”.
Hill said the FCA’s review into the advice boundary is a big opportunity to demonstrate how innovation and better use of data analytics will enable greater engagement through improved personalisation.
“This is a crucial step to help savers and investors meet the challenges of the cost-of-living crisis and support the nation as we rebuild our financial resilience,” he said.
“Everyone has a role to play here, including us, to ensure that savings and investing is accessible to all and recognising that a one size fits all approach to communications does not work.”
Elsewhere, the research found that when asked what would help cash ISA customers understand the benefits of a stocks and shares Isa, the most popular tool being asked for is one that allows them to input information about themselves and then tells them the most appropriate investment for them.
An online tool or app where people can see the potential growth of a stocks and shares Isa investment over time, depending on the investments chosen, is also ranked highly with cash Isa customers.
A joint approach is also needed between industry, the FCA and government on creating a more inclusive retail investment market. Tisa Alastair Black, head of industry change at Abrdn, said: “In the current environment we know many will be struggling to save anything.
“And for those who can save – even a small amount – they really need to consider where they are putting their long-term savings to ensure they can get the best rate of return possible, particularly relevant in these uncertain times with high inflation.
“As an industry we need to work together to help simplify language for consumers and find a way to get them to understand the real risks of inflation to staying in cash.”
Tisa said personalised guidance could give people more confidence to take the next step and invest and the research found that many consumers would be more likely to invest if they understood the benefits of a professional fund manager.
The report said as part of the calls to action, the industry needs to provide simpler and clearer information on stocks and shares Isas.
The benefits of diversified funds and having a fund manager to manage risk should be better communicated, it explained.
Tisa also said a joint approach is needed between the FCA and the industry to ensure people obtain a more balanced and accurate appreciation of the risks, as well as the benefits, of investing.
Tisa said it welcomes the government’s willingness for Mifid to be redesigned to create an investment regime that better suits the needs of the people who would benefit from sensibly investing for the future.
Steven Tait, head of investments at Nationwide, said: “The cost-of-living crisis means many will find it difficult to save each month. But for those who have the opportunity to invest, it’s important the industry and regulator make it easier to access help, information and personalised guidance and advice.
“This is key to increasing engagement with stocks and shares Isas, giving consumers the best chance of benefiting from investing in the current economic climate.”
The research asked 2,002 people from June 8 to July 4, 2022 and was commissioned to understand the motivations and barriers consumers experience when considering investing, and the implications for policy, regulation and Isa providers.
sonia.rach@ft.com
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