Why the UK investment system needs a complete overhaul
Nick Saunders, CEO of Webull UK, an online investment platform, says the UK must completely overhaul its investment system if it wants to drive growth.
Like a rickety Edwardian chair with a broken leg, the retail investment infrastructure in the UK is so badly damaged that not even the most optimistic Bargain Hunt contestant would hope to turn a profit on it.
The tax regime is unfriendly, but more importantly, the London Stock Exchange has rested on its laurels for years. Brokers remain fixated on their own narrow offerings and are uninterested in explaining products outside their own sphere and our regulator lacks any mandate to expand market participation.
We are at a tipping point – without radical reform, the UK risks losing its investment infrastructure entirely. Locally listed products will wither on the vine, leaving those investors who do want access to the markets to seek offshore, potentially unregulated, alternatives.
The UK must maintain a functioning market
Does it really matter whether the UK has a functioning investment market? It does, and here’s why. For individual investors, keeping assets exclusively in cash leaves them overexposed to interest rate and currency risk, while the alternative – venturing into unregulated or high risk products – typically leads to large losses for those least able to weather them.
Not only does there need to be a functioning, well-regulated and accessible investment industry, but we need a public that understands how to navigate it. On this front, the financial sector has fundamentally failed.
For those working in the financial industry, it is easy to overestimate the amount of knowledge the general public has about investing and underestimate the trepidation first time investors feel before investing. A glimpse at online forums reveals the scope of this problem: educated adults regularly seek basic advice on how to get started in investments.
They have some money but no idea how to invest it sensibly. They struggle with fundamental questions about the comparative advantages of ETFs, individual shares, managed funds, property, or cryptocurrency.
While the FCA has no mandate for growth, several organisations could theoretically fill this educational void. Sponsored by the DWP, the Money and Pensions Service (MaPS) triumphs in its mission ‘We help people – particularly those most in need – to improve their financial wellbeing and build a better, more confident future’.
Yet their MoneyHelper website focuses on benefits, budgeting and debt management. Even within their dedicated Investing section, content is sparse. The only article under ‘Managing Investments’ merely warns against high-risk investments, while their ‘Beginner’s guide to investing’ offers minimal substance. The London Stock Exchange website looks promising with a tab on ‘Personal Investing’, but its content targets semi-experienced investors, with just 206 words explaining what shares are.
The Personal Investment Management and Financial Advice Association (PIMFA), an industry body for Wealth Managers, focuses on matching investors with appropriate advisors. It’s clear that no entity wants to be responsible for guiding novice investors, which needs to change.
Brokers and fund managers must address this gap
The retail financial industry needs to address this – particularly brokers, fund managers and exchanges – must address this gap. Educational materials from brokers typically assume investors already understand their objective, focusing on technical analysis or share selection.
Meanwhile, content produced by exchanges and fund managers focuses on the details of the products they offer rather than foundational concepts.
YouTube offers some valuable resources, but sorting the wheat from the chaff is not easy, particularly given the predomination of affiliate marketing and paid-for influencers.
My preferred solution is for a non-profit organisation, funded by an annual levy on the retail investment industry, to produce unbiased content – both online and offline – for investors of all experience levels. Importantly, this organisation has to distinguish itself from clickbait headlines and disguised marketing to provide content that will help people of all ages understand what they can invest in.
Understanding how to diversify assets and the impact of inflation and market risk is vital. We must bridge the gap between basic debt advice and technical analysis that leaves potential investors in the British economy reluctant to invest.
Without this intervention, we risk undermining not just individual financial security, but the long-term viability of our capital markets themselves.