In capital markets circles, the goose that lays the golden eggs for retail investment is the US.
The New York taxi driver checking the performance of stocks in his 401K, or the college students comparing their online trading platforms between classes are more than archetypes. More than 63 per cent of US citizens invest in stocks and shares compared to less than a quarter (23 per cent) of their UK counterparts.
In the UK there has been a consistent decrease in the number of households directly owning shares since the 1960s, despite the “Tell Sid” privatisations of the Thatcher years.
Office for National Statistics 2023 data show the proportion of UK shares held by UK-resident individuals fell to 10.8 per cent, down by 1.2 percentage points from 2020. Meanwhile, 12 per cent of UK individuals now own crypto. While many Brits have exposure to the stock market through their pensions, very few are direct investors in UK equities.
The Money and Pensions Service advise that three to six months’ worth of living expenses should be held in cash, and that people should consider putting further savings into diversified investment funds that meet their risk appetite.
Yet cash Isas are a popular tax-incentivised saving product and analysis from Barclays reveals that there is an estimated £430bn of UK consumer savings held in cash by 13mn individuals that could be invested for higher returns. Unlike the US, where higher costs for education and healthcare mean more people invest, in the UK, cash is the preferred option for financial security.
Turning this around to provide more productive investment to benefit individual investors, companies and the broader economy requires government, regulators, and industry to work together to:
-
make best use of technology;
-
deliver further reform of regulation and policy; and
-
to provide people with the tools to make confident, informed decisions.
Developments in technology are revolutionising the way individuals can invest in the markets. Social media and mobile apps are emboldening a new generation of investors who are already beginning to engage with the markets.
Organisations like Investec, RetailBook, Fidelity Investments and Robinhood are just a few examples of technology-driven companies that are educating and empowering individuals to engage in capital markets in ways that support their long-term financial goals.
If the UK is to turn into a nation of investors, then individuals need personalised guidance and tools to simplify access and help them make informed decisions about the financial products available to them.
They need to understand that UK capital markets, particularly UK growth markets, can connect them with growing companies in their regions, potentially offering a healthy return on investment.
A co-ordinated approach
For that to happen, policymakers must outline the risks and rewards that UK public equity markets offer compared to other assets to attract investors in a way that is both balanced and easy to understand.
But to really drive change, to increase the number of UK savers investing in capital markets and reaping the benefits, a co-ordinated approach is essential.
Policymakers and regulators acknowledge that a zero-risk approach to investments is not in the best interests of the consumers they rightly have a duty to protect.
HM Treasury has set out the need for a clearer focus on retail participation in its consultation on the planned financial services growth and competitiveness strategy.
The Financial Conduct Authority’s proposals for targeted support, as part of their advice-guidance boundary review, will allow firms to provide support and suggestions appropriate for consumers with similar high-level characteristics.
These will help to send the message that holding excessive savings in cash is not the most effective route to long-term financial health.
Collective stocktake needed
But while these and other measures continue to shine a spotlight on retail investment, a collective stocktake between industry, policymakers and other key stakeholders is needed now to pull all these initiatives and innovations together to create a long-term vision and coherent strategy to boost UK retail investment.
The strategy should set out the overarching public policy objectives to guide the co-ordination of policy and regulatory regimes, such as the advice-guidance boundary review, to ensure the provision of effective targeted support for investing.
It should rebalance fiscal incentives, particularly those in the Isa regime, to encourage people with adequate levels of cash savings to invest further savings in equities.
At the heart of the strategy, a holistic, long-term, UK-wide strategic programme is needed to improve financial capability and confidence. The government should take a clear leadership role in this space and ensure adequate resources to help more people, companies, and places benefit from investment.
Individuals in the UK should have the confidence to invest when they can afford to do so, to compare investments, and to decide which will provide them with good long-term outcomes.
The UK needs to take steps to boost retail investment in a way that aligns with its domestic growth agenda and the value placed on consumer protection.
The focus should emphasise growth companies, and those in high-potential growth driving sectors across our regions and nations. Any measures should promote shared prosperity across the nation, empowering individuals not only to benefit from healthy returns but also the indirect benefits of investing in public companies: the products, services, and jobs that investment drives.
Maintaining our reputation as a centre for strong consumer protection will help the UK attract both domestic and international investors and businesses.
We want exciting growth companies to publicly list their shares here, and there is a simultaneous window of opportunity to reinvigorate retail investment in the UK.
To encourage people to directly invest in the fast-growing UK companies there needs to be a more positive narrative around investment, and around the UK public equity markets.
Regulatory initiatives to improve access and simplify guidance, a rebalancing of fiscal incentives, and the removal of stamp duty on UK equities would help. Technological innovations such as digitisation of equities and other assets also offer opportunities to engage and empower people across the UK to get involved in investing.
Encouraging more people across the UK to engage confidently and consciously in our capital markets is a potential win-win for all. It could boost financial inclusion by enabling individuals and families to be part of the wealth creation that capital markets generate.
It would also help to finance homegrown companies that aim to contribute to regional and national growth. The appetite and interest are there. With a well-defined strategy and collective action, retail investors can be part of the inclusive growth the government is promoting.
John Godfrey is managing director of public affairs, policy and research at TheCityUK