Banks to tell you where you might invest your money

People who might otherwise turn to friends, family or social media influencers for financial advice will be given new help to invest their money.

Targeted support from registered banks and other financial firms is being approved by the City regulator and is expected to begin in April.

This will allow firms to make investment and retirement recommendations based on what similar groups can do with their money.

It still falls short on personalized advice, which can only be provided for a fee by a qualified financial advisor.

Almost one in five people have turned to family, friends or social media for help when making financial decisions, according to a survey by the Financial Conduct Authority (FCA).

Sarah Pritchard, deputy chairman of the FCA, said the new regime would be a “game changer”.

“This means millions of people can get extra help making better financial decisions,” he said.

“We also hope this will create greater confidence in investing. While investing isn’t right for everyone, we know people in the UK invest less than they do in the EU or the US.”

For millions of people, depositing money is not an option. The regulator said one in 10 people have no cash savings, while another 21 per cent have less than £1,000 available for use in an emergency.

But FCA data suggested around seven million adults in the UK with cash savings of £10,000 or more could achieve better returns through investment.

Investing comes with some risks, as the value of an investment can go down as well as up, but the spending power of cash savings can be eroded by rising prices.

The regulator said there were many consumers who were in a position to invest but chose not to do so because they were unsure of their options, overwhelmed or needed more support. Just 9% of people surveyed received regulated advice about their retirement and investments in the 12 months to May 2024.

It aims to bridge the gap between targeted support, general guidance and information, and fee-charging financial advisors.

For example, banks may explain how large amounts of cash can be invested or how investments can be distributed to reduce risk.

This is about making recommendations based on people’s circumstances and characteristics, rather than giving expensive personalized financial advice, Ms Pritchard told the BBC’s Today programme.

“It’s important for consumers to understand what it is and what it isn’t, and these are not exhaustive recommendations,” he said.

Unlike detailed financial advice, Ms Pritchard said this targeted support should be free.

“Commission banned” [and] “We expect most companies that provide this, subject to our regulations, to offer it free of charge to consumers,” he said.

Yvonne Braun, policy director at the Association of British Insurers, said: “The FCA’s new rules mark a significant step towards closing the advice gap and will empower millions.”

Some consumer groups have made clear that the new rules should not lead to firms exploiting customers.

Assistant editor at which company? Sam Richardson said cash savings would be eroded over time by inflation, while investment could actually increase savings.

He told the Today programme: “If this gets people to start investing – provided they are offered products that are actually of reasonable value and that suit their needs – then we would welcome that.”

But he said people should not be pushed to take more risks.

“The thing that worries us most is that if firms are giving inappropriate advice to clients and it’s their first investment, it can really put them off,” he said.

“So we want the regulator to keep an eye on firms going ahead to check whether these recommendations actually work for customers.”

The FCA said participating firms must be authorized in advance. They can include banks, building societies, investment platforms and digital wallet providers.

They will also be required to show that their advice is appropriate and should only be offered if it puts people in a better position, the regulator said. Any security vulnerabilities to customers need to be identified and taken into account.

Consumers will have the right to refer any disputes to an independent financial ombudsman.

There will also be a move to allow people to make more informed decisions about their pensions.

The regulator’s new rules will require legislation, but the government has made it an explicit aim to encourage people to invest. The Treasury believes this will help create economic growth.

This was one of the reasons why Chancellor Rachel Reeves decided to reduce the annual allowance for cash Isas (Individual Savings Accounts) from £20,000 to £12,000 per year for under-65s from April 2027.

FCA also launched a campaign. “company checker” tool To help prevent people from losing money to scammers through investment scams.