Earlier this month, the FCA published its Sector Views intended to provide an overall view of how each financial sector is performing based on the data available and the FCA’s views at mid-2019.
We’ve picked out some of the regulator’s most interesting findings and comments from the retail investments section.
- Peer to peer lending and mini bonds bigger than you might have thought: At the end of 2018, 1.2% of British adults held retail or mini-bonds. That’s well over 600,000 people. Twice as many – 2.4% or over 1.2 million – are invested in peer-to-peer/crowdfunding.
- Investment in ‘alternative’ assets continues to grow: 9% of British adults are currently invested in ‘alternative’ assets including peer-to-peer lending, equity and debt crowdfunding, buy-to let property, cryptocurrencies, and collectable assets. That equates to almost five million investors and the trend shows this number increasing.
- There is an increasing appetite for ISAs with risks attached: Over the last decade, stocks and shares ISAs have seen a steady increase in amounts subscribed – from £9.7 billion in 2008/09 to £28.7 billion in 2017/18. Meanwhile cash ISAs subscriptions peaked at £61 billion in 2014/15, falling back to £40 billion in 2017/18 and, “newer markets exist for the Innovative Finance ISA.”
- The value of ongoing advice is clear: “Advisers’ revenues rose 11.7% in 2018, compared to a 21.4% rise in 2017. Commission, at 20% in 2017 and 17% in 2018, has been steadily decreasing as a share of revenues since the Retail Distribution Review. Ongoing charges have helped to fill the gap, as their value increased by 19% to £3.4 billion in 2018, while revenue from initial advice charges increased by only 6% to £1.9 billion.”
- One-off advice is harder to find: There is some evidence that there is a gap in the availability of one-off transactional advice and support for mass market consumers, which may limit consumers’ ability to make good investment decisions.
- Building new client bases is a real concern: Because of intergenerational differences with younger generations being considerably worse off than previous generations, “firms may struggle to attract younger generations to the sector.”
- Wealth inequality driving investment and restricting it: The average income of the poorest fifth fell by 1.6% in 2018, while it rose 4.7% for the richest fifth. This could signal higher net worth clients having more to invest, but make it even more unlikely for the poorest to get on the long-term savings ladder.”
The FCA has suggested low interest rates, leading to a search for higher yield in higher risk investments is a factor in the first three points, but the numbers are impressive. Meanwhile, it’s obvious why advisers prefer ongoing relationships to one-off advice. While it seems a few have even more money to manage and invest, there is clearly a need for advisers to take the plunge with new clients, particularly those still looking to build their wealth from small beginnings, for future benefits.