The UK financial regulator has proposed sweeping changes to democratise investment in financial products, in an effort to help millions of people facing a sharp rise in living costs earn better returns on their savings.
The Financial Conduct Authority on Wednesday laid out plans to enable individuals with “straightforward financial needs” to take advice from less-qualified experts, which will be cheaper than that of traditional investment advisers.
The watchdog also wants consumers to be able to spread account set-up fees over a longer period, so that the initial costs of investing are not prohibitive. At present, an investor can pay a fee of up to 3 per cent per investment for advice.
Companies will be directed to simplify investment advice and reduce paperwork for small investors under the new regime, which will cover only “mainstream investment products” such as stocks and shares ISAs.
The proposals come as households contend with record-high inflation and rising interest rates, and a year after the FCA began exploring how to make investing more accessible to the 4.2mn people with more than £10,000 in savings which it believes have some appetite for investment risk.
“Now, more than ever, people across the UK should have access to useful and affordable financial products and services which can improve their quality of life and support the economy,” said Sarah Pritchard, FCA executive director of markets.
The proposals were largely welcomed by investment companies and investor groups, which have long called on regulators to allow financial companies to offer prospective investors more services without extra red tape.
“This is a watershed moment,” said Richard Wilson, head of trading platform Interactive Investor. “Financial advice currently centres around complex suitability homework, which gets in the way of finding simple, affordable solutions. This is joined up, right-way-round thinking from the regulator. It’s a big deal.”
Chris Hill, chief executive of Hargreaves Lansdown, the UK’s largest investment site, said it was “great” that the FCA had recognised “today’s all-or-nothing approach to advice doesn’t suit everyone, especially those with sufficient savings who are started out on their investment journey”.
Cliff Weight, director of ShareSoc, which represents retail investors, also welcomed the FCA’s announcement, saying “nanny-state regulation” had led to savers “miss[ing] out on the better long-term returns of equities over cash”.
But he warned that the reforms would not “solve the problems of the low levels of financial education in the UK”.
Tom Selby, head of retirement policy at investment platform AJ Bell, said the proposals were not a “one-and-done solution to the advice gap challenge”.
“While stripping back qualification requirements and creating a narrow set of investment options may be enough to tempt some firms into the market, the regulator will likely have its work cut out assuaging concerns about liability,” said Selby.
Companies offering advice under the new regime will be bound by the FCA’s new consumer duty requirements, which take effect next June. They will require providers to ensure their services fit clients’ needs and do not cause “foreseeable harm”.
The FCA is consulting on its proposals until the end of next February and hopes to introduce the regime by March 2024. The EU is also working on a Retail Investment Strategy to promote “transparency, simplicity, fairness and cost-efficiency for retail investment products across the internal market”.