Can banks really be trusted to tell us how to get rich by investing our cash?

The FCA has given the green light to banks to offer ‘targeted support’ to customers with money to invest, writes James Moore. Stock market returns outstrip what you’ll get from even the best savings accounts, and Britain needs to invest more, but it is risky

Advice from a bank? Are you kidding? I think I’d rather have a pack of wolves teaching me about wilderness safety in the Canadian north.

Sharp sales practices by dodgy blokes in shiny suits have been responsible for a long and sorry list of scandals costing billions.

And yet, here is the Financial Conduct Authority (FCA), the City’s watchdog, trumpeting “game-changing” plans to allow them to offer “targeted support” on pensions and other savings as some sort of holy grail that will get Britain investing.

What does “targeted support” even mean? It’s so vague. The FCA and the Treasury, which is the ghost at this table, are concerned that there are millions of people with more than £10,000 who could invest more productively and profitably for the economy. And especially for themselves.

However, less than one in 10 people obtain regulated financial advice that might help. The regulations are strict. Advisers have to conduct lengthy and laborious fact-finds. Their recommendations have to be justified and qualified with wordy documents. It is a trip to the financial dentist, and just as expensive. Small wonder that twice as many prefer to turn to family, friends or social media – an idea so bad it makes my teeth ache – for help with making decisions.

People have spent years trying to come up with something in between strictly regulated financial advice and getting stock tips from your mate’s TikTok. Part of the problem was created by the dismal record of banks when it comes to advising on and selling financial products.

The car finance scandal in which dodgy commissions were paid and received without the borrower’s knowledge is still being cleared up. The payment protection insurance scandal – which involved banks flogging often worthless insurance, ostensibly to cover people’s loan repayments – cost more than £50bn.

‘I’ve never had cause to regret the investments I’ve made in stocks and shares ISAs. The index trackers I started with were inexpensive, easy to understand, and ultimately (very) rewarding’ (Getty/iStock)

Going further back, their life insurance arms encouraged people to opt out of generous workplace pensions in favour of something much worse. Then there were the endowment policies that turned out not to cover the mortgages they were sold to pay off.

In the dim and distant past, bank managers were trusted advisers who could be relied upon to see you right. Then their bosses turned them into salespeople, with increasingly aggressive targets to meet if they wanted to keep their jobs, and rich bonuses for heedless selling on the other side of the equation. No wonder it all went horribly wrong.

So you can see why people like me, who have spent years writing about this godawful mess, might have a few concerns when the FCA tells us that consumers will now be able to sit down and get recommendations not based on a “full, in-depth individual assessment”.

Firms taking the plunge will need to “make sure” that these are suitable and “should only be offered when it puts consumers in a better position”. Um, what does that mean in a year when the stock market stumbles? Anyone?

Here’s the thing: Rachel Reeves and the FCA are not wrong. Too many of us have too much cash rotting away in accounts whose interest payments barely beat inflation if we’re lucky.

Over the long term, they would do much better by tapping into the markets. You have to accept taking the rough with the smooth. But the broker AJ Bell points out that the FTSE 100 – even as tech light as it is – has “delivered positive returns in eight of the past 10 years, averaging 9.1 per cent annually over that period, including dividends”.

“This kind of performance reinforces the attraction of investing over the long term,” it said. “There may be years when performance disappoints, but history suggests it’s worth pursuing.”

Quite so. Trouble is, we Brits aren’t very good at talking about this sort of thing. We’d be better off if we did.

So, I’ll get the ball rolling: I’ve never had cause to regret the investments I’ve made in stocks and shares ISAs. The index trackers I started with were inexpensive, easy to understand, and ultimately (very) rewarding.

The trouble is, markets are scary, and the lengthy risk warnings the FCA demands, plus the assertion that past performance is not indicative of future results, make them more so. The watchdog is not wrong there. But with risk comes reward. We too often forget that.

Sitting down with someone who could offer a bit of guidance might help. However, it requires a regulator that is fit for purpose. It also requires that banks offering this (ugh) “targeted support” prove they have learned from their past misdeeds.

Learning lessons is not something they’ve been good at, despite the dizzying costs they’ve incurred through errors and misdeeds. It is on both the banks and their watchdogs to ensure that it’s different this time.