After the week Rachel Reeves has had, I wonder if she will be tempted to U-turn on her hugely unpopular plan to slash the £20,000 annual cash Isa allowance to as little as £4,000 before it’s been officially announced?
With the intention of nudging cash-hoarding Britons into becoming a nation of investors, the chancellor is expected to confirm the controversial move in her Mansion House speech on July 15 — assuming she’s still in post.
I’ve previously argued that educating cash savers about the long-term benefits of investing would be a more effective tactic than slashing their tax-free savings allowance. A lot of people — pensioners especially — have zero intention of risking their money in stocks and are angry at the prospect of paying tax on savings interest.
Although it generated hardly any headlines in a busy news week, a huge regulatory shake up of the financial advice market is coming that could be a game-changer for millions of non-investors — and this would be a far better focus for her speech.
An estimated 13.2mn people in the UK fall into the advice gap. They’ve got some money they can afford to invest, but not enough to afford the services of a fully regulated financial adviser.
Currently, banks, pension providers and investment platforms avoid having two-way conversations about investing with customers through fear it could be perceived as financial advice. But the regulator’s proposed introduction of “targeted support” next year would allow firms to bridge this gap with more personalised interactions. Using data to identify groups of consumers with common characteristics, firms could nudge and make suggestions to help people narrow down their options.
The prime target for this support? In regulatory parlance, the underinvested holding excess cash. It is estimated that more than one-third of UK adults could fit into this category.
One example given in the consultation documents was a woman holding £20,000 in a savings account. Her bank suggests she might get a better return by investing some of this money. Interested, she chooses to answer some simple questions that allow her bank to check she has an emergency fund and no significant debt to pay off, and is prompted to outline her savings goals, investment time horizon and attitude to risk. Based on her responses, the bank suggests putting £5,000 of her cash into a ready-made medium-risk stocks-and-shares Isa.
The final investment decision will still rest with the individual, but experts feel this could open the door to a simple, mass-market advice solution that the UK has been lacking for so long.
Boring Money, the finance website, has been testing the appetite for these kinds of nudges with consumers ahead of this week’s consultation launch and reports a broadly positive response.
“People were so surprised that a financial company might actually send them useful information,” says Boring Money’s chief executive Holly Mackay, referencing the current omerta. Some people might find these prompts creepy. But, she says, consumers are becoming much more accustomed to firms using our data to make helpful suggestions, such as what to watch on Netflix, or what we might buy on Amazon. Could personal finance follow suit?
Boring Money found that people really liked the idea of knowing how well they were doing compared with others. Being told, “actually, you’re not saving as much as other people in your earnings bracket” could be a much more powerful nudge than a generic communication asking if you’re saving enough for retirement. At the other end of the journey, pension firms could use targeted support to help retirees weigh up the pros and cons of annuities, say, or alert those who are drawing down their retirement funds at an unsustainable rate.
Often, customers who are new to investing simply require some basic reassurance from a human being. Investment platform Hargreaves Lansdown tells me that customers frequently call its telephone helpline saying: “I’ve done some research and here’s what I’m thinking of doing — does that sound OK?” Targeted support would provide a regulated framework for more directional conversations to happen.
Boring Money found the most appreciated insights were ways of getting a better deal. For example, if an investor was charged a high fee for a tracker fund in their portfolio, but their platform alerted them to a similar one costing less (cynically, I wonder how many firms would willingly do this).
The risk of millions of people losing out by not investing their long-term savings is what concerns the chancellor. But, clearly, regulators must guard against the risk of targeted support turning into targeted product sales. This will be a difficult balance to strike.
The FCA’s research has shown consumer interest in targeted support depends upon it being free at the point of use. The cost will vary hugely, depending on whether support is provided by an algorithm or a person. To receive regulatory blessing to provide these services, firms will have to explain how it fits within their business model. And clearly, free advice will have limitations.
Would the woman nudged into investing £5,000 in her bank’s ready-made investment Isa be better off sticking it in a global tracker fund on the lowest-cost platform she can find? Probably. But while you and I might have the knowledge and confidence to do so, without this intervention, a non-investor would arguably remain in cash. By enabling a better long-term outcome for her savings, is it acceptable for the bank to make a buck?
And of course, there is no guarantee that investing will provide her with better returns. Firms will have to manage the communication of investment risk very carefully indeed. Let’s say our newbie investor sees the value of her medium-risk choice of fund plunge following a government-induced implosion in the gilts markets. How might she feel about her bank’s suggestion then?
Targeted support will be a huge regulatory change with lots of areas for the consultation to explore, and I’m very interested to hear what FT readers think. Yet I feel strongly that doing nothing to help people understand their investment options would be a far worse alternative.
As for Reeves’ Mansion House speech, focusing on measures that will help create future generations of investors would be a better look than simply slashing the cash Isa allowance. But even if the lady is for U-turning, I fear the growing certainty of further tax rises at the Autumn Budget risks destroying trust in the long-term savings and investment culture we already have.
Claer Barrett will be speaking at the FTWeekend Festival on September 6, 2025, at Kenwood House Gardens, London. For passes go to: ft.com/festival. Claer is the FT’s consumer editor and author of the FT’s Sort Your Financial Life Out newsletter series; [email protected]; Instagram and TikTok @ClaerB