Bolstering UK retail participation: why just telling Sid won’t be enough

The UK is lagging drastically behind European counterparts when it comes to retail shareholding. According to a report by New Financial, the proportion of households in the UK that directly own stocks and shares has plummeted over the past two decades, more than halving from 23% in 2003 to 11% in 2022. Low levels of retail investor participation are detrimental to all parties, slowing down business and economic growth in addition to limiting personal and public wealth.

If we take a look at Sweden, by comparison, we see a very different picture. The country boasts a healthy stock exchange and strong retail investor participation figures, with 22% of households directly owning stocks. This thriving investor climate is underpinned by a variety of factors that encourage retail investing and a steady flow of capital for businesses, such as popular tax-advantaged Investment Savings Accounts and, crucially, adoption of modern technology and shareholding infrastructure that allows for a high level of transparency between issuers and shareholders.

In stark contrast, back in the UK, the government is attempting to boost retail participation in a very different way: persuading Brits to buy shares in NatWest through a Thatcher-era advertisement campaign. In the 1980’s, share ownership figures skyrocketed with the privatisation of the UK’s nationalised industries. This era is defined by the ‘Tell Sid’ campaign encouraging the public to buy British Gas shares. The government has even brought back Saatchi and Saatchi, the original campaign runners, to work on the NatWest project.

This is sparking fierce debate around how to save London’s struggling stock exchange and bolster retail investment levels. Indeed, there is much more that can be done to increase retail investor participation and get people investing in the stock market more broadly.

Telling Sid falls short:

Although a similarly successful Tell Sid-style campaign could temporarily hike retail participation numbers, it is unlikely to have the full desired effect as it did in the 80’s, given the different factors now at play. Encouraging investors, many of whom could be investing for the first time, to buy stakes in a single organisation through a government scheme won’t drive the more widespread engagement in the stock market that the campaign aims to achieve.

The campaign will also struggle with its audience. It’s easy to get seasoned middle-aged investors on board if you can convince them of a good investment. However, the key to long-lasting increases in retail investor participation and stock market interest will be engaging the much larger Gen-Z demographic. This is a completely different ball game, given that the generation is less financially engaged, but more digitally capable.

This is where technology enters the conversation. Buying stocks and shares in the UK is a complex process. There are currently two parallel systems of retail ownership operating simultaneously, making the process inefficient and causing duplications. One system operates share certificates digitally through the CREST system, the other supports investors still holding outdated paper share certificates via the issuer’s registrar. In addition to this, antiquated share ownership and transfer models often make shareholding processes slow and inefficient, leading to an administrative burden that causes increased costs and time delays around settlements. In this way, increasing retail investor participation hinges on the ability to modernise our shareholder infrastructure, rendering it easier for everyone to engage with stocks and shares.

Tackling the crux of the issue:

The government must deploy digital solutions and new technology into the UK’s shareholding infrastructure if it is to bring around the cultural shift necessary to create long-lasting public interest in investing. Initiatives like the Secondary Capital Raising Review and Sir Douglas Flint’s Digitisation Taskforce recognise this need for change and are exploring the modernisation of the UK’s shareholder framework. 

These initiatives have already recommended the dematerialisation of all paper share certificates and called for a sleek new model for share ownership operated out of a single digital share register. It is imperative that the government adheres to these recommendations and works closely with FMIs and regulators to increase shareholder participation and Gen-Z interest in the stock market.

The benefits of higher retail engagement in the UK could be immense. If national households were to invest a quarter of their financial assets in equities and funds, an additional £740bn of capital could be unlocked. Injecting this capital into the economy could be transformational for business growth and the stock exchange, revitalising the UK as a capital-raising hub and potentially boosting household wealth as well.

Digitisation is critical to achieving this and will make the whole process of owning and managing shares more transparent and efficient, all while helping to reduce associated costs and risks for investors and issuers alike.