We used these insights to draw out five specific public policy recommendations:
Recommendation 1 – FCA badge to identify entry-level investment products that meet specific diversification/asset allocation criteria: To support new investors in identifying products that may suit their financial objectives, the FCA should develop a ‘badge’ for one or more entry-level investment product types that firms could use if their offering meets a specific set of diversification and asset allocation criteria suitable for that intended market of less experienced investors.
These criteria would be developed in consultation with industry and consumer groups and should be narrow enough for ‘badged’ products to be considered comparable, but broad enough to enable innovation.
Recommendation 2 – Simpler sign-up journey for entry-level investments: It follows from recommendation 1 that ‘badged’ products are, by design, suitable for entry-level or novice investors. Our research shows that potential investors are strongly attracted to the concept of investing being easy. To make investing in one of these ‘badged’ products easier, and alongside the new UK Retail Disclosure Regime, the FCA should therefore ensure a simpler sign-up journey for investments into ‘badged’ products. This would reduce some of the current frictions in the sign-up journey in terms of declarations, risk warnings and product documentation for entry-level investors.
Recommendation 3 – Regulatory changes to enable firms to suggest investment actions to customers with large cash balances, based on “people like you” personas: In order to further support consumers in identifying the type of financial investment product that may suit them, government and FCA should alter the regulatory framework for the provision of financial guidance to enable (regulated) private sector firms to suggest investment actions or products to any of their own customers whom are identified as holding significantly more cash than would be expected for an emergency fund.
This new regulatory framework should explicitly permit consumer-facing guidance based on generic personas such as “people like you would benefit from X”. The easiest way to do this would be as an example of permissible activity within the scope of the ‘Targeted Support’ option (option 2) as part of the ongoing review by the government and FCA of the Advice Guidance Boundary.
Recommendation 4 – Online tool and investment guidance from MaPS: Similarly, and in parallel, the Money and Pensions Service (MaPS) should place a renewed focus on providing public-facing generic investment guidance through its MoneyHelper brand, to include an online tool that guides individuals to the broad set of financial investment products which they may wish to consider.
Recommendation 5 – The development of comparison tables for entry-level investment products: Bringing this together, government should also adopt an explicit policy aim to monitor and spur the development of easily accessible comparison tables for entry-level ‘badged’ financial investment products, so that consumers can make side-to-side comparisons through best-buy tables.
