Our annual conference arrives at a critical juncture—just four weeks before the national elections. With the forthcoming government set to prioritize growth and long-term investment, our industry stands at the forefront of these vital discussions. Today, I outline the essential shifts needed to rise to this occasion.
Fundamentally, we must renew our commitment to prudent risk-taking, aiming to secure long-lasting returns for our clients. This approach will not only support UK growth through smarter capital allocation but will also advance our vision for a technology-driven UK export powerhouse, boosting overseas revenue, tax contributions, and employment in the forthcoming years.
The benefits of these changes extend beyond the economic sphere—they promise profound societal improvements. Today’s agenda seeks to enhance our industry’s role in society, broaden the understanding of long-term investment benefits, and ensure that millions enjoy a more prosperous retirement.
So, what steps must we take to realize this vision? My speech today focuses on three pivotal themes:
Over recent decades, safetyism has skewed our perception of risk, leading to unintended consequences that misalign with our broader economic and social needs. For instance, while de-risking defined benefit (DB) pensions makes sense on an individual scheme level, it has led to diminished UK equity investments and risk capital—a topic we have extensively discussed.
Moreover, the drive towards cost control in defined contribution (DC) schemes, while protective, has conflated cost with value, reducing investment in higher-growth opportunities. This approach risks diminishing future returns, impacting our long-term financial landscape.
Another critical aspect is the ‘hierarchies of harm’. Regulatory focus on immediate consumer protection overlooks broader harms like insufficient retirement savings. The challenge is clear: the risk of inaction is far greater than the risk of imperfect products or advice.
Reflecting on the UK Retail Distribution Review, while some have gained from high-quality financial advice, others find themselves disadvantaged by increased barriers. As we reconsider our approach to risk, it’s imperative to also recalibrate how our industry drives growth and capital allocation.
The alignment seen in the late 20th century between private capital and economic needs has shifted, with UK equities now representing a smaller portion of managed assets. Despite the benefits of global diversification, the decreased focus on UK equities presents a challenge, amplified by recent shifts in international investment flows.
Our concluding call is for a renewed agenda on risk capital and growth. Recent discussions, including those by regulatory leaders, suggest a readiness to explore new pathways focusing on genuine value rather than mere cost. As we stand at this pivotal moment, the alignment among industry, regulators, and policymakers offers a unique opportunity to redefine and revitalize our approach to investment and growth.
“In what other industry would you be buying a product or service based only on how cheap it is rather than also considering the quality of what’s provided?”, she asked . “That can’t be right,” she concluded.
I wholeheartedly concur. The past decade has seen a relentless focus on minimal price differences in securing mandates, highlighting the urgent need to reframe our approach. This shift is crucial not only for the DC pensions market but also for retail investments.
Additionally, collaborative advancements in technology and tokenization are ushering in a significant phase of competitive transformation, driven by AI and other technological innovations, impacting both our industry and society at large.
I would like to extend my gratitude to Michelle Scrimgeour, CEO of Legal and General Investment Management, for her exemplary leadership of the Technology Working Group within the HMT Asset Management Taskforce.
How do we integrate all these elements effectively? There are three main deliverables I’m excited to discuss, which resonate with and enhance the excellent efforts of others in our field, such as Peter Horrell and TheCityUK.
Firstly, we need to emphasize investment within the pensions framework. It’s the core of our pension systems, and it’s time to leverage the current momentum from initiatives like Mansion House to spearhead a new investment strategy. This strategy should encourage DC pensions to invest in both public and private markets. I am particularly pleased to see the emergence of more Long-Term Asset Funds, though our ambitions extend far beyond this.
Three critical actions are necessary for broader change:
1. Expanding access to collective defined contribution (CDC) schemes
2. Making auto-enrollment the default for all workplace pensions
3. Reforming the Lifetime Allowance
These steps will empower us to address the capital shortfall in the UK, fostering a more globally competitive stance without the need for government mandates. Maximizing these changes also demands a holistic review of our pension system, including tax incentive designs, which is likely to be a focus for any new administration.
Turning to my second major theme: It’s time to overhaul retail investment policies to genuinely support positive outcomes in a Consumer Duty world. The evolution from physical stores to online platforms has drastically changed consumer interactions, but our industry’s approach remains outdated. It’s crucial to rethink both industry and regulatory frameworks to support modern investors.
The FCA’s 2021 consumer investment strategy has already acknowledged the need for more consumers to invest wisely according to their circumstances. To achieve this, we must provide decision-useful information in a digital—and likely AI-driven—format, moving away from complex regulatory requirements towards a simpler, transparent system.
Additionally, we must improve customer engagement to guide better investment behaviors, overcoming longstanding barriers between advice and guidance. Moreover, both the FCA and The Pensions Regulator are now focusing on improving retirement income delivery across the DC pensions market, which is a positive step forward.
Finally, we need to make the UK a more attractive investment destination through systemic reforms, such as abolishing the UK’s relatively high stamp duty on shares and enhancing the UK listing and stewardship processes.
In conclusion, the journey ahead requires a transformative approach to investment and risk. We must abandon excessive caution and embrace a new path focused on:
1. Reinvigorating risk-taking for long-term growth
2. Rethinking the ‘hierarchies of harm’
3. Overhauling retail investment policies
4. Making the UK a more attractive investment destination
These objectives are challenging but essential for building a financially resilient nation that leads on the global stage. I am eager to collaborate with all stakeholders to realize this vision, driving a true democratization of the UK capital market that supports sustainable investing and innovation, ultimately benefiting everyone involved.
