Today’s proposals broadly welcome, but new measures ‘need to be careful not to throw the baby out with the bathwater’.
interactive investor, the UK’s second-largest DIY investment platform, today responds to the FCA consultation Strengthening our financial promotion rules for high risk investments, including cryptoassets, focusing on inducements and appropriateness tests.
On financial inducements
Moira O’Neill, Head of Personal Finance, interactive investor, says: “The FCA has a tricky task of balancing the need to protect consumers without playing nanny, and today’s proposals are sensible. But new measures need to be careful not to throw the baby out with the bathwater.
“A proposed ban on inducements to invest is a case in point. The FCA is rightly concerned that even when used by legitimate firms, inducements could unduly influence consumers’ investment decisions and cause them to invest without fully considering the risks involved. The devil is always in the detail, and consumers need to be careful that they are not ending up with a poor value deal for the sake of a free pen or prize draw – or ending up in a toxic investment.
“But crucially, cashback offers need to be looked at on their own terms. It is plain wrong to assume that a recommendation from a friend, with a genuinely beneficial referral offer made through first-hand experience with a trusted provider, should be treated with suspicion. It can be far more reliable than following an advertisement lead.
“These things always need to be taken on their own terms. Our own ‘Recommend ii’ offer gives £200 to existing customers who refer a friend. In addition, new customers recruited via the programme have their monthly fee waived for the first year – worth £120*. With a wealth of tools to help people get started, and a suite of educational content, and access to our fair, flat fee, which stays the same even as customer wealth increases, let’s have an open mind on referrals at a time when the FCA wants more people to look beyond cash accounts.”
Certain high-risk investments
Interactive investor welcomes the FCAs proposals to look at certain high-risk investments and suggesting more robust questions about their knowledge and investment experience, after research found many consumers were investing without being aware of the risks.
Moira O’Neill adds: “Again, there’s a fine line to be trodden here but the FCA is right to follow its own lead on this issue, in a responsible and proportionate way. The specialist funds market is a case in point. While its likely most platforms, like interactive investor, will treat specialist fund market stocks as complex, and require customers to pass an appropriateness assessment before they can invest, a more uniform approach to issues such as this may well worth scratching under the surface on.”
More generally, Myron Jobson, Personal Finance Campaigner, interactive investor, says: “These proposals are broadly welcome and follow a permanent ban on the mass-marketing of speculative illiquid securities - including speculative mini-bonds in 2020. The role of the regulator here shouldn’t be in the business of holding hands, but to ensure the marketing of financial products isn’t salacious and has clear and concise risk warnings to help consumers make an informed decision for themselves.
“Risk is an inherent part of investing, but there are some investments that raise the stakes to levels akin to slot machines in a Las Vegas casino. It is important that investors know what they are getting themselves into rather being reeled in by the allure of glossy marketing.
“Adding an extra hoop for investors to jump through to investors could prove controversial, but there are certain segments of the market where scrutiny is welcome.”
Notes to editors
*Terms and conditions apply, and referrals need to have a minimum balance of £10,000. Terms available here: https://www.ii.co.uk/ii-for-friends/customer
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