Money

Government must utilise retail investors in its quest for growth

Published

2 days ago

September 17, 2024

NewsAdmin

There are two distinct phases in the political cycle of every governing party following a general election.

The first is where new faces and new ideas begin introducing themselves to the country. The second, which is harder, is where we expect them to deliver against their objectives.

This Labour government may have expected to have found themselves in the first stage a little longer. However, a combination of recent events and their inheritance means we are already quickly moving towards that second phase.

The defining objective of this government, and the one they will most likely be held most accountable for, is their mission of growth.

Growth will support the government’s wider policy priorities, underpin our economic recovery and get public services working in the manner we all expect.

To deliver this growth, it will look to enable investment, specifically through large financial institutions. We know already it will lean heavily on the pension market through its pensions review to deliver internal investment to boost UK infrastructure, as well as strong returns for savers.

This is welcome and sensible but we believe there is an extra tool in its locker which has historically been overlooked – retail investors. Supported by our sector, they can play a central role in the next phase of UK economic growth.

Our recent government agenda set out three areas of focus on how this can be achieved. These include giving consumers the tools and incentives to save and invest for their financial futures, maintaining and growing the UK as a destination of choice for investors and investment, and providing regulatory and legislative clarity and stability for firms to invest and grow.

It is the third area of focus readers here will have the most interest in. Our desire for regulatory and legislative clarity and stability is driven by a recognition of the significant regulatory changes that have affected this sector for the best part of the preceding decade.

Most notable in this regard is Consumer Duty. We are beginning to understand the implications of how it will pervade supervisory decisions and policy choices made by the regulator.

The recently announced review of the FCA rulebook and its applicability post-Consumer Duty is an opportunity for firms to streamline processes. Still, we are cognisant of the possible challenges moving away from a prescriptive regulatory environment will pose.

Determining what is and what isn’t a good outcome without the security blanket of established rules and processes will have regulatory implications and impact our compensation frameworks.

Returning to the theme of growth and the role retail investors can play in delivering it, a key challenge for this government will be equipping consumers with the right tools and incentives to save for their financial futures.

There is a marked tendency in the UK to under-save and, therefore, under-invest. The primary drivers are the cost-of-living crisis and low wage growth, but some of this has to do with the significant complexity now inherent in our financial system and the ability of retail consumers to access the support they need.

To help consumers access financial services, we need to find ways to address these.

The obvious focus here is the advice guidance boundary review. We have been enthused that the new government remains focused on proportionate change to better support consumers who do not access advice, but we remain steadfast in our belief a liberalisation of guidance should not represent a watering down of the value of advice.

To achieve this, the government and regulator need to truly understand what the advice gap is and move away from a mindset which sees advice as a solely transactional process. If they do not, attempts to close the advice gap could see a return to a sales-focused financial services sector under the banner of ‘targeted support’.

We also strongly advocate for a consumer-focused disclosure framework that relies on giving consumers information they need about products and helps them make informed decisions. We remain committed to the principle advised clients should be able to trust the information provided to them by their adviser in a format that is most useful to them – the suitability letter, for example.

For non-advised consumers, the focus should be enough to educate and inform but not overwhelm.

Most of what we will advocate for will only be deliverable in the medium to long term. As this government starts its transition to its second phase of delivery, it will have to balance its mission for growth against its desire to fix the country’s finances.

This represents a significant challenge – how do you encourage investment where many of the fiscal levers you can pull could potentially strangle it? This is the reality of governing and why this government would perhaps have preferred to spend longer in phase one as opposed to phase two.

That said, it is committed to its mission to deliver growth, and we remain committed to working together to ensure this can be achieved in as universal a manner as possible.

Liz Field is chief executive of Pimfa

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