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Consumers need help to move excess cash holdings into investments, TISA and Oxera research shows

November 3, 2022

  • TISA and Oxera research finds that consumers are missing out on lucrative Stocks and Shares ISA (S&S ISA) opportunities due to lack of engagement.
  • More than 70% of consumers who do not have a S&S ISA have never considered investing in one, with risk aversion being the decisive factor.
  • Consumers perceive the likelihood of losing money in a S&S ISA investment to be substantially more likely than observed in historic FTSE100 returns.
  • Consumers find the perceived riskiness of S&S ISAs as a barrier and the customer journey time-consuming and complex.

Today, TISA and Oxera announce the latest findings from their joint research on Stocks and Shares ISAs (S&S ISAs). The research was commissioned to understand the motivations and barriers consumers experience when considering investing, and the implications for policy, regulation and ISA providers.

The research suggests that while information exists around S&S ISAs and the savings options that consumers have, over 70% do not even consider savings in a S&S ISA. One of the key reasons is that they don’t believe the product is for ‘people like me’. Prompting more people to consider S&S ISAs could result in several benefits, such as facilitating levelling up across disadvantaged areas, reducing the gender gap and facilitating social mobility.

Among people who consider investing in S&S ISAs, perceived riskiness is the strongest barrier to investing in a S&S ISA that has been highlighted in the research. People who have not invested in a S&S ISA perceive the chance of making a loss over a 10-year period in equity markets to be over 30%, whereas the historic probability of realising a loss from investing in the FTSE100 over a ten year period is 3.5%. 

The research found over a quarter of people with at least £5k in a bank account intend to withdraw their savings after five or more years, with a significant portion of savers also saying they were planning on holding their savings for ten or more years.

These customers could make a higher return investing in S&S ISAs, and possibly do not realise that their inflation means their current method of investment may be depreciating in real terms. Personalised prompts and nudges could help people consider S&S ISAs.

Consumers who have not purchased a S&S ISA find it time consuming, difficult, and complicated to find information about how, where, and why to invest in a S&S ISA. Those who have got a S&S ISA found the process straightforward and easy, but time consuming. This suggests the industry can do better to make the journey clearer, simpler, and more convenient. 

When asked what would help Cash ISA customers understand the benefits of a S&S ISA, the most popular tool being asked for is one that allows them to input information about themselves and then tells them the most appropriate investment for them. An online tool or app where people can see the potential growth of a Stocks and Shares ISA investment over time, depending on the investments chosen also ranked highly with Cash ISA customers. Personalised guidance could give people more confidence to take the next step and invest.

The research finds that many consumers would be more likely to invest in funds if they understood the benefits of a professional fund manager. Consumers said that information from public figures/influencers, quality ratings, and price comparison websites would help them to make a decision about S&S ISAs.

Prakash Chandramohan, strategic policy director at TISA said: “Consumers need personalised guidance and tools that make information about investments and Stocks & Shares ISAs more accessible and digestible to them. For many people, choosing a S&S ISA wrapper and underlying investments is unchartered territory and they need help to make informed decisions that suit their long-term interests. 

“The lack of engagement in S&S ISAs is a clear example that firms need the legislative environment and regulatory tools to communicate with consumers in a savvier manner.  Firms ought to be able to issue prompts, nudges, alerts and suggestions that guide consumers to make sensible investment decisions.  This would allow firms to deliver the regulatory objectives of ensuring consumers understand the benefits and risks of different options, so they can make informed decisions. We welcome the intention to review the UK’s Advice-Guidance boundary to look for a solution that will better meet the needs of UK households.”

Alastair Black, Head of Industry Change at Abrdn said: In the current environment we know many will be struggling to save anything. And for those who can save – even a small amount – they really need to consider where they are putting their long-term savings to ensure they can get the best rate of return possible, particularly relevant in these uncertain times with high inflation.

“As an industry we need to work together to help simplify language for consumers and find a way to get them to understand the real risks of inflation to staying in cash.”

Steven Tait, Head of Investments at Nationwide said: “The cost-of-living crisis means many will find it difficult to save each month. But for those who have the opportunity to invest, it’s important the industry and regulator make it easier to access help, information and personalised guidance and advice. This is key to increasing engagement with S&S ISAs, giving consumers the best chance of benefitting from investing in the current economic climate.”

Please see here: https://www.tisa.uk.com/tisa-oxera-joint-report/