What is an investment ISA?
An investment ISA is also known as a stocks and shares ISA. In this short video, Clare explains what it is and what the main benefits are.
The value of investments can fall as well as rise; you may not get back what you invest. If you’re not sure about investing, seek independent advice.
Clare is a director of Savings and Investments, having joined Barclays in October 2015. Her background is in financial journalism with over 15 years’ experience of covering consumer finance. Clare started her career at The Times in 1999. She moved to the Independent on Sunday where she was Deputy Personal Finance Editor and then became Assistant Money Editor at the Sunday Times.
Before joining Barclays, Clare was Editor-in-Chief and Head of Consumer Affairs at MoneySuperMarket. She was one of MoneySuperMarket’s main spokespeople, regularly appearing on TV and radio as a consumer finance expert.
The Advice Gap – A Daunting Prospect?
We examine what it is, what caused it, what impact it is having on consumers, and how the industry has reacted, including here at Barclays through the recent launch of our “Plan & Invest” service.
PHIL ATTREED: Hello and thank you for joining us for this, the fifth episode of our Word on The Street personal finance series.
In this episode we’ll be focusing on the availability of advice for savers and investors in the UK, how the banking and investment industry has adapted to recent changes in the rules around giving advice and finally, how Barclays has gone about making it easier for customers to invest for the first time – a daunting prospect for many.
I’m Phil Attreed, Barclays Head of Investment Consulting and for this episode I’m pleased to be joined once again by Clare Francis, Director of Savings & Investments and our Chief Executive of Wealth Management & Investments, Dirk Klee. Welcome to you both.
Now Clare – let’s start with the “advice gap” – this is a term which has commonly been used across the UK financial services industry and many a headline of weekend supplements for a number of years now; what exactly does it mean or refer to?
CLARE FRANCIS: Basically, here in the UK, we’re facing a big problem because individuals aren’t saving enough for their long term futures – namely, their retirements. This is often referred to as the Savings Gap and the Advice Gap is linked to it because one of the reasons why we think that people aren’t saving enough is that they don’t really know what they should be doing or how to do it and don’t feel they have access to the help and advice they ideally need.
What’s more, regulatory changes over the past few years, such as pension auto-enrolment, pension freedoms and new types of ISAs mean that while we potentially have more choice with regards to how and where we can save and invest for our futures, the decisions about the best courses of action, are more complex. This can put people off from doing anything, which in turn potentially makes the savings crisis worse.
And when it comes to saving for the longer term, it’s not just how much you put away that matters, where you put your money is also important. If you just leave it all in cash savings, over the long term, say after five or more years, it’s unlikely to increase in value by as much as it would if you invested some of it. However, investing comes with additional risk because stock markets can fall as well as rise and there is always a risk your investment can lose money. So it can be a daunting prospect if you don’t feel confident about making financial decisions on your own.
PA: And what brought about this “advice gap” in the first place?
CF: I think it’s always existed to an extent in that some people haven’t known where to go for advice, but it’s increased following changes to the way we pay for financial advice, which took effect in 2012.
Historically, it was a commission-led industry so rather than an individual paying a fee upfront for the advice they received, the advisor would take a cut based on the amount that person invested and where their money was put. However, there was concern that it wasn’t transparent because consumers didn’t understand what the advice was costing them and that it could be leading to bad practices as there was a risk that some advisers could be recommending products that paid them the highest levels of commission, rather than what was most suitable for the customer.
So commission-based advice was banned and instead we now pay a fee for financial advice. While this is clearer and more transparent for consumers, it resulted in a reduction in the number of companies offering financial advice.
This is partly because individuals felt they couldn’t afford to pay for face-to-face financial advice – or didn’t want to pay for it if they were just exploring options – so demand reduced. But also, a lot of companies pulled out of the market.
As a result, fewer people have been seeking advice at a time when the need and potential benefits of having some help when it comes to making financial decisions are rising due to the complexity of the things we need to consider. That said, as I’m sure we’ll come on to, we’re seeing new options emerge as companies try to tackle the savings and advice gap, giving consumers greater accessibility to advice options.
PA: Quite, let’s turn to precisely that topic next. Dirk, in your experience, with a perspective from a number of investment providers across the industry, how do you feel the industry has reacted to addressing this “advice gap” over the past few years?
DIRK KLEE: I would say the initial industry response has been slow and rather cautious.
As some of the big financial firms, including Barclays, retreated from offering advice at scale, advice became less affordable and increasingly limited to a smaller number of wealthier individuals.
So the majority of people were left with broadly two options:
As a result, demand for share dealing and other similar platforms increased and companies like Barclays altered their services to try and provide greater levels of support to help consumers feel confident enough to make their own investment decisions. But a lot of people still need more than this and don’t feel able to make these decisions on their own.
So what happens when there’s an unmet need that existing firms don’t address fast enough? Well, new entrants will soon appear to meet that need… and with the increasing popularity of digital tools, this is how robo-advice came to life. Robo advice is online, digital advice. So, rather than speak to an adviser face-to-face or over the phone, you answer a number of questions online and then receive an investment recommendation.
At first, there was one start-up offering this, as early as 2012, but this number of Robos has gradually turned into double-digits in the years since, including some provided by larger financial providers1.
PA: And do you think that the approach taken by financial firms and start-ups has changed as they’ve learned from consumer behaviour and appetite for advice?
DK: Well, while robo-advice gained traction and was tipped as the solution to the advice gap, the reality is more nuanced …
It’s true that customers value the affordability that robos provide, which can be delivered using technology to replace certain human functions but customers also value a personalised service and being able to interact with another human when they need support.
PA: The Barclays Wealth Management and Investments team under your stewardship has invested a lot of time and resources into exploring the solutions to this problem. What insights do we have from our own customers at Barclays as we’ve undertaken this work; and what are they telling us about what they need?
DK: Well, more broadly our own research found that over half of Brits (56 per cent) feel that they don’t currently have access to the expert support they would need to start investing, with 71 per cent believing that they don’t have the skills or expertise to invest on their own2.
This research wasn’t limited to Barclays’ customers but we believe that these views are likely shared by a number of our customers who look to us for support.
And indeed, over the last few months, we’ve seen a rise in the number of people wanting to invest for the first time so it feels more important than ever that we give people the right tools and advice to plan for their financial future.
Our customers have also been telling us that that they want an investment service that gives them the convenience and affordability of robo-advice, but with more personalisation and periodic personal support – these are features more typically associated with a Wealth Management service.
PA: So Clare, turning back to you - a question I am often posed in social, personal situations when people ask what I do for a living is, whether most people we pass in the street or stand in the supermarket queue with, are even aware that they should be investing? As I’ve mentioned on prior podcasts, is there a risk that we get caught up in the technicalities of investing when in fact the problem is much more basic – frankly a limited financial awareness?
CF: I don’t think investing is the first thing on people’s minds and that’s understandable. If I think about my own life – it’s busy and there’s so much to juggle. Plus, if you’re talking about something that’s still 30 or so years away, it’s easy to see why other things can feel more important, or a higher priority at the moment (particularly when investing isn’t something most people feel they know much about).
But equally, I think a lot of people know that they should be doing more to plan for their future – they just never quite get round to it!
Interestingly though, the pandemic is having an impact in terms of people changing their behaviours and some seem to be spending less and saving or investing more. And as Dirk’s already mentioned, we’ve seen an increase in the number of people investing for the first time. This is a positive sign which will hopefully continue.
PA: Thanks Clare, that’s good to hear but as you say, some way to go for the UK as a nation of investors. Dirk, let’s just finish by exploring how Barclays is addressing the ease with which our customers and future customers can better understand investing and confidently take those first steps using our new Plan and Invest service?
DK: We launched Smart Investor a few years ago to try and help those who are comfortable in making their own investment decisions. However, we recognised this wasn’t enough for everyone and wanted to offer an alternative service that provides an even greater level of support by offering digital advice. And that’s what Barclays Plan & Invest does.
We partnered with Scalable Capital to launch the new service which decides whether investing is appropriate for the customer and, if so, creates a personalised Investment Plan tailored to each customer’s goals and then Barclays manages the investments on the customers’ behalf.
PA: So what does the service involve?
DK: Customers complete an in-depth questionnaire about their circumstances, what they’re looking to achieve and by when. They also complete a personality assessment which explores how they respond to risk.
By using the latest technology, we combine this information with our investment expert’s pick of investments – these were previously only accessible to our Wealth Management clients.
All of this will result in a personalised plan that can follow over 10,000 investment paths.
PA: And so does this differ from services offered by our industry peers?
DK: Unlike many robo-advisers, we’ll adapt the investment plan to any changes in the market or the customer’s circumstances and check-in with them at least once a year, to make sure that the investments are still right for them and that they’re making the most of their ISA allowances.
If anything needs to change, for example if they would benefit from moving their investments into an ISA account, we will take care of it.
We are initially piloting this new service with Barclays current account customers who have at least £5,000 to invest, but will continue to develop it over the coming months. It can be accessed through Online Banking, the Barclays mobile app and customers also have access to dedicated support over the phone3.
PA: Fantastic - thanks Dirk for the insights into how we have been adapting to industry change and customer needs. Thank you also Clare for sharing your experience with us once again and thank you our listeners for taking the time to join the podcast. As always you can listen to our regular Friday podcasts on the latest markets and investment thinking and we’ll be back soon with the next episode in our personal finance series looking at tips for staying invested for the long term through difficult periods for investors.
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