“Social media and online advertising mean consumers are taking less time between seeing a promotion, and making a financial decision,” says Sarah Pritchard, the FCA’s executive director of markets, noting the increased potential for harm as price rises panic consumers into making snap decisions.
The regulator has removed or amended more than 5,000 unsuitable financial promotions by FCA-authorised firms this year — about 10 times the number it took down in 2021. Greater screening powers will allow it to more firmly rap the knuckles of unregulated firms and influencers whose promotions “gamify” investing without clearly flagging the risks.
Great — but this still leaves the huge problem of crypto (currently outside of the FCA’s remit) and a rising tide of scams, though the much-delayed online safety bill will force the platforms themselves to do more.
One big reason consumers rely on social media is the lack of affordable financial advice elsewhere. Just 8 per cent of UK adults have taken regulated advice over the past year. The estimated “advice gap” contains 13.2 million Britons with more than £840 billion ($1.6 trillion) of investable assets. Significant sums, but not big enough for many advisory firms to bother with.
This week, MPs proposed an amendment to the financial services and markets bill that would enshrine a new category of advice — personalised financial guidance.
While scams and high-risk investments can cause financial harm, not taking enough risk is also a problem — holding too much money in cash, or not investing enough to retire on. Just as auto enrolment has successfully nudged millions into pension saving, investment platforms could help customers make better decisions by combining platform data with insights gleaned via Open Banking, where customers can opt to share their financial data with FCA-approved entries, and the forthcoming Pensions Dashboard.
“The platforms can see who is sitting in cash, and who isn’t appropriately diversified,” says Holly Mackay, founder of consumer website Boring Money. “There’s a huge appetite across the industry to do more, but it’s a grey area from a regulatory perspective and firms err on the side of safety.”
Yet on the other side, unregulated finfluencers await. Personalised guidance would help customers focus at a much earlier age while there is still time to change outcomes. Model portfolios could show them how to diversify their investments better. Their investing and spending data could be used to project what kind of retirement income could be generated from their existing pot and how this compares to their day-to-day expenditure.
But there are limitations. Guidance is not “advice” — it requires individuals to make decisions of their own volition. Plus, if customers choose to invest more cash or upgrade to paying for regulated advice, this will be a winner for the platforms. But as Mackay puts it, “Would regulators rather that people were perfectly wrong, or approximately right?”
One area where I’d love to see these nudges applied is to the menace of high investment charges. The most costly UK tracker fund is 21 times more expensive than the cheapest, according to research from investment platform AJ Bell.
Platforms can see which of their investors are holding the worst-value options, so why not guide them to a cheaper alternative? The same goes for “closet trackers” — active funds with expensive management fees that drain retirement savings yet perform no better than a cheaper passive fund.
Being financially resilient, slowly building up your investments and retiring more comfortably by the age of 70 may not be meme-worthy, but these are the messages that should have far greater influence.
- Claer Barrett is the FT’s consumer editor and the author of “What They Don’t Teach You About Money”.
Written by: Claer Barrett
© Financial Times
