Is more personalisation the answer?

For many, the first steps on the investment ladder are difficult to take and, with the Money and Pensions Service suggesting that 47% of UK adults do not feel confident making financial decisions, this indicates that a significant proportion of the UK population are as far away as ever from achieving peace of mind in their retirement. Consequently, engagement and how we achieve it is a permanent issue for the financial services industry.

To delve deeper into this, PIMFA commissioned some research, working in conjunction with market research company Savanta, seeking the views of 500 adults who described themselves as either advised investors, DIY investors or non-investors. Each had more than £10,000 of investable funds.

Through this research, we wanted to test our own hypothesis that providing non-advised consumers with targeted, personalised guidance to encourage investment decisions would help more people overcome the behavioural barriers which prevent them from investing. In this area, our findings are a little disappointing.

The resulting report – ‘A Little More Personalisation’ – shows that a significant majority of non-investors said they probably, or definitely, would not start investing within the next 12 months. The reasons given for this ranged from perceptions of the investment world as intimidating, a lack of exposure to investing within their social circles and feeling emotionally apprehensive or overwhelmed about investing. Moreover, only just under half of the non-investors polled understood the risk of the value of their cash savings being eroded by inflation over time.

Tellingly, among those that described themselves as investors, the reason cited by 45% of advised investors and 31% of DIY investors for them beginning their investment journey was hearing about the investment experiences of friends, family or others within their social network.

But, as per our premise for this research, the findings showed that the introduction of basic personalisation for non-investors would have some, but not a substantial, impact on consumer behaviour relative to the current state of play where no personalisation exists. This means encouraging people to make active decisions about their finances requires a radical change in consumer behaviour, indicating that this is a broader symptom of both financial disengagement as well as extremely strong emotional and structural barriers preventing UK consumers from being active participants in the UK investment market

It is for these reasons that we have been extremely supportive of the Government and FCA’s joint review of the advice guidance boundary. We recognise the value that certain structural changes could bring in supporting consumers to make lifechanging decisions throughout retirement, as well as encouraging them to take their first steps on the investment ladder.

But, as much as we are supportive of change, we are also realistic about how impactful these changes will be. Financial services have long been littered with interventions which seek to drive engagement among those who previously have not, or did not, want to be reached. Inertia is an extremely powerful force in this sector, and to date, initiatives that have been successful have been those that have sought to nurture rather than disrupt it.

More broadly, whilst we are alive to the opportunities here, we must also be aware of the potential risks. In considering what is permissible in future under advice and guidance we would urge the Government and the FCA to ensure that consumer protection remains at the forefront of their minds.