After the week that Rachel Reeves had, will she try to make her very unpopular plan to cut her annual cash ISA allowance to just 4,000 pounds a year before it’s officially announced?
The Prime Minister is expected to confirm the controversial move in a speech at Mansion House on July 15, with the intention of protecting cash so that Britain becomes an investor nation.
I previously argued that educating cash savers on the long-term benefits of investments is a more effective tactic than reducing tax-free savings benefits. Many people (particularly pensioners) have zero intentions to put money at risk with stocks and are angry at the prospect of paying taxes on savings interest.
Though it was hardly headlined in a busy news week, there can be a major regulatory shaking in the financial advice market that could be a game-changer for millions of non-investors.
An estimated 13.2 million in the UK are classified as the advice gap. They have the money they can afford to invest, but they cannot afford the services of a fully regulated financial advisor.
Currently, banks, pension providers and investment platforms are eschewing two-way investment conversations with their clients through what may be perceived as financial advice. However, with the introduction of “target support” next year, regulators suggested, businesses can fill this gap with more personalized interactions. Using data to identify groups of consumers with common characteristics, businesses can tweak and make suggestions to help people narrow down their options.
What are the main targets for this support? In regulatory terms, they hold an excess of underinvestment. It is estimated that more than a third of UK adults can fit into this category.
One example of the consultation documents was a woman holding £20,000 in a savings account. Her bank suggests that investing a portion of this money could lead to better returns. Interested individuals are encouraged to choose to confirm that the bank has emergency funds, answer some simple questions that will ensure that there are no large debts to pay back, and outline their savings goals, investment time horizons, and attitudes towards risk. Based on her response, the bank suggests putting £5,000 in cash into ready-made, risky stocks and share ISAs.
The ultimate investment decision is still up to the individual, but experts feel that it can open the door to the simple, mass market advice solutions that the UK has long lacked.
Finance website Boring Money has tested its appetite for these types of fine-tuning with consumers ahead of the start of talks this week, reporting a highly positive response.
“People were very surprised that financial companies could actually send useful information,” says Holly Mackay, chief executive of Bowling Money, referring to Omerta, the current Omerta. Some people may find these prompts creepy. But she’s getting much more used to companies using data to make useful suggestions, such as what to watch on Netflix, and what you can buy on Amazon. Can personal funds be followed in lawsuits?
I discovered that Boring Money really likes the idea of knowing how well people do things compared to others. It’s said that “In fact, you’re not saving as much as the others in your revenue bracket,” so it might be a much stronger nudge than the general communication asking if you’re saving enough for retirement. At the other end of the journey, pension companies can use targeted support to help retirees assess the pros and cons of pensions and alert those who are cutting their retirement funds at unsustainable interest rates.
In many cases, customers who are not used to investing simply need basic human security. Investment platform Hargreaves Lansdown says its customers are calling phone helplines frequently. Target Support provides a regulated framework for more directional conversations to occur.
Boring Money has discovered that the most highly valued insights are a way to get a better deal. For example, if investors were charged high fees for portfolio tracker funds, but their platform warns that similar costs are low (ironically, how many companies would be willing to do this).
The risk that millions of people will lose by not investing in long-term savings is about the Prime Minister. But obviously, regulators need to prevent the risk that targeted support will turn into targeted product sales. This will be a balance that will make strikes difficult.
FCA research shows that consumers’ interest in targeted support depends on freedom at the time of use. Costs vary widely depending on whether support is provided by the algorithm or by the individual. To receive regulatory blessings to provide these services, businesses need to explain how it fits within their business model. And obviously, there are limitations to free advice.
Would a woman be better off sticking to the global tracker fund on the lowest cost platform she can find in investing £5,000 in a bank’s ready-made investment ISA? probably. But you and I may have the knowledge and confidence to do so, but without this intervention, non-investrs will definitely maintain cash. Is it acceptable for the bank to make money by enabling better and longer-term outcomes for her savings?
And of course, there is no guarantee that your investment will provide a better return. Companies need to manage their investment risk communications very carefully. Let’s say our novice investors see the value of her medium-risk fund plunge following the government-induced explosion in the gold leaf market. What does she think about the bank’s proposal?
Targeted support is a major regulatory change with many areas for consultations to explore, and I am very interested in hearing what FT readers think. But I strongly feel that doing nothing to help people understand their investment options is a much worse alternative.
As for Reeves’ Mansion House speech, focusing on measures that will help create future generations of investors would look better than simply cutting cash ISA allowances. But I’m worried that even if women are due to U-Turning, the increased tax certainty in the fall budget risks destroying the trust we already have in our long-term savings and investment culture.
Claer Barrett will speak at the FTWeekend Festival, which will be held at Kenwood House Gardens in London on September 6th, 2025. For paths, go to ft.com/festival. Claer is the consumer editor of FT and the author of FT’s Surt Your Financial Life Out Newsletter series. claer.barrett@ft.com; Instagram and Tiktok @claerb
