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Blog: Cutting Through the Noise on Stocks and Shares ISAs

February 24, 2023

By Prakash Chandramohan, Strategy Director at TISA

For many, the words ‘Stocks and Shares’ will automatically conjure up images of investments that the richest in society dabble with, involving dangerous risks. That perception has lodged itself firmly in the minds of consumers and as a result, millions in the UK are missing out on opportunities to improve their long-term financial situation. This is despite the fund industry’s efforts to develop products and communications just for those people who are not confident making their own investment decisions. So, what can be done?

In research conducted by Oxera for TISA, it was found that over 70% of participants who have either a bank account with over £5,000 in savings or a Cash ISA had never considered investing in a Stocks & Shares ISA, and  more than 80% had never even looked for information on the offering.  

Despite the clear pressures of inflation, those participants who were unengaged included people intending to hold their savings in cash for longer time periods, even five years or more, despite very high inflation.  Consumers who could benefit considerably from investing their excess cash holdings remain feeling excluded from doing so. The industry needs to find new ways to meet consumers where they are, engage with them on their terms and support them to make the most of their money.  

Providing engaging and inclusive information about Stocks & Shares ISAs, which people from all backgrounds can understand and act upon, is a necessity if we are to change this trend.

Overcoming risk and loss aversion

At the most basic level, the biggest barriers to increased participation in Stocks & Shares ISA are people’s risk and loss aversion – consumers holding on to excess cash don’t like uncertainty and prefer to sacrifice potential gains in order to avoid potential losses. However, these same people seem to have inflated perceptions of the risk of losing money when investing in equities through a S&S ISA.

On average, respondents with a Cash ISA or at least £5,000 in a bank account expected a 30-35% probability of loss after 10 years of investing in a Stocks and Shares ISA.  In reality, the historic probability of losing money over a 10-year period has been 3.5% on the FTSE100 and 0% on the FTSE 250.

Providing clearer information on how risk can be managed may also help consumers engage with investing. Many respondents in the research were uncomfortable with key industry terms like ‘diversification’ or ‘active and passive funds’. Also, at least 51% of participants in the Cash ISA and bank account samples said that they would be ’more likely’ to invest in funds if ‘funds are less likely to lose money in the long run’ or ‘funds are low risk’.

Making the benefits clear

Not only does the industry need to make Stocks & Shares ISAs appear less intimidating, the language used when promoting the products needs to be more understandable and accessible. Of those interviewed in our research who did not already have a Stocks & Shares ISA, common industry jargon and terminology often made them feel ‘confused’.

Thankfully, lack of trust is not the issue.  Over 92% of participants with a Cash ISA or at least £5,000 in a bank account said that a lack of trust in financial services providers did not stop them from investing in a Stocks & Shares ISA.

It is crucial for the retail investment industry to shift its communication strategies around Stocks & Shares ISAs to make information more accessible, simpler and less intimidating. At a time when cash savings are being eroded by high inflation, the industry has a pivotal role to play in encouraging consumers to make their savings work harder for them. 

Useful links:

The keys to unlocking greater investment in Stocks and Shares ISAs