Rising interest rates impacted every part the UK retail investment market in 2023 as cash has once again become a viable option for those seeking returns.
Many investors sold down portfolios and moved into cash, retirees in particular. Platforms rolled out cash management services. Wealth managers launched cash-focused model portfolio services. Bonds, money market funds and other low risk investment options returned to the fore. Annuities also returned as a viable option, at least for a part of clients’ pension pots in retirement, where drawdown has dominated in recent years.
Financial advisers are having to consider their clients’ cash balances more keenly and wealth managers have a renewed opportunity to run CGT-efficient portfolios of directly held gilts and other qualifying bonds. Rising interest rates have also hit private equity funding, dampening the recent waves of consolidation of advice and wealth management businesses, but that’s a story for another day.
We sized the total UK retail investing market at £2.25tn in 2023 in our recent UK Fund Distribution: Annual Review. This was only marginally down from the year before, despite the shift to cash. This figure comes from aggregating Platforum’s data on wealth management, advice and D2C.
Lumping in cash savings, Premium Bonds and workplace pensions results in a £4.7tn retail saving and investing market. The outlook for this total market looks relatively positive for 2024 – the household savings ratio has remained surprisingly high given the pressures on households’ finances. However, the mix between savings and investments is continuing to shift.
There’s still a chasm between adviser platform gross and net flows, according to the Q4 data that’s currently emerging – segments of customers are still selling down investments and moving to cash. Until interest rates start coming down, many investors will continue to succumb to the allure of cash.
Platforum has recently published UK Fund Distribution: Annual Review, our end-of-year overview providing a comprehensive picture of the UK retail investing market. For more information, please get in touch.