🔔 Financial Conduct Authority (FCA) calls for more consumers to invest rather than hoard cash

Author: Anna Bowes
30th September 2021

The City’s financial regulator, The Financial Conduct Authority (FCA) has announced plans to encourage savers in the UK to invest their cash into assets other than savings accounts, as it is worried that too many are missing out on potential wealth creation.

Worse still these savers are seeing their cash being eroded in real terms, as rising inflation eats into their purchasing power, meaning that their hard-earned cash cannot keep up with the increasing cost of living.

Image Source: Financial Conduct Authority

The FCA has identified that there are around 8.6m consumers who are holding more than £10,000 of investable assets in cash, even though they have a “higher risk tolerance” which they are not currently exploring.

The regulator stated “Many consumers who might gain from investing, currently hold their savings in cash… Over time, these consumers are at risk of having the purchasing power of their money eroded by inflation”

It added “We want to see a consumer investment market in which consumers can invest with confidence, understanding the risks they are taking and the regulatory protections provided.”

This is all part of a wider strategy that also aims to protect first-time or inexperienced investors from taking excessive risks or being targeted by fraudsters.

So, while encouraging more people to invest outside of cash, the FCA is also hoping to see a 50% reduction by 2025, in the number of consumers investing into higher risk investments, who indicate that they don’t like to take much risk or may be vulnerable to scams and misleading adverts.

The FCA is concerned that some investors access higher-risk investments which do not reflect their risk tolerance and are very unlikely to be suitable for them. According to the FCA’s Financial Lives Survey published earlier this year, Coronavirus (Covid-19) has accelerated some of these trends, with 6% of adults investing for the first time or increasing their holdings of high-risk investments during the pandemic.

This is of particular concern as according to the FCA’s research, there is a lack of awareness of the risks of investing, with almost half (45%) of non-advised investors unaware that ‘losing some money’ is a risk of investing.

The campaign will warn about the risks of some high risk investments such as cryptocurrencies – it will also look to tighten the rules around the marketing of these products.

Laura McLean, Chartered Financial Planner from The Private Office says “Times like this really illustrate the risk that holding all your money in cash can bring. When inflation is higher than the interest you can earn, your wealth is being eroded.

While investing can introduce some volatility to the day-to-day value of your savings, the outcome can be more rewarding as long as you understand the risks and are able to leave your money alone for the medium to long term, so at least five years.”

Laura adds “The key is to choose the right investments to suit the level of risk you are prepared to take and be comfortable with the inevitable bumps in the road along the way. This means there will be times that you should leave your money to recover, rather than cashing in at the wrong time due to a knee jerk reaction”

If you’re worried about rising inflation and think you might be holding too much in cash, perhaps you'd like to explore other options, so why not get in touch. Call one of our colleagues at The Private Office (TPO) on 0333 323 9065 or request a call-back here.