The conventional issuance and trading of debt securities has largely remained unchanged for decades. However, the advent of blockchain technology has brought about a new fixed income instrument known as the Smart Bond. Smart Bonds come with a host of benefits. They can reduce administration, settlement and custody costs, enable quicker issuance and settlement for governments and investment banks and provide increased automation and transparency. They also offer retail investors, who have historically been excluded from the institutional bond markets, access to trading. Large financial organisations, such as the World Bank, Goldman Sachs and various central banks, have and are continuously testing this technology to determine its ability to effectivity enhance existing fixed income markets.
By GreySpark’s Jennie Brotherston, Senior Specialist and Rachel Lindstrom, Head of Capital Markets Intelligence practice
Individuals, known as ‘retail’ investors, can access the stock market by buying shares – either by investing directly in companies or through investment in funds, including exchange traded funds (ETFs) which can be traded on stock exchanges, in a similar way to individual shares.
In the UK, retail trading in equities remains a small market compared with many other developed nations. In the UK, adults hold the smallest percentage of their wealth in equities (not including equity investment by their pension provider), ETFs and mutual funds of any G7 country at 8% (see Figure 1). This is in significant contrast with the US, where the figure is 33% or Australia, where more than a third of the adult population holds on-exchange investments.
In this article, GreySpark discusses some of the statistics, drivers and potential in this market.
Figure 1: Beneficial Owners of UK Quoted Shares by Subsector
Source: Office for National Statistics
The Evolution of the UK Market
It has not always been this way – historically in fact, there has been a consistent decline in individual ownership of equities in the UK since the 1960s – in 1963, 54% of the UK stock market was owned by individuals in the UK1 – a figure that fell to 10.8% by 2022 – and more recently, the proportion of UK households directly owning shares has more than halved from 23% in 2003 to 11% in 2024 – until the last few years when some sources suggest that it has finally begun to trend tentatively upwards once again.
Additionally, it is interesting to note from Figure 1 that overseas investors now hold a larger proportion of UK equities than UK individuals and institutions combined, which clearly has an impact on the flow of capital and might well be an influence on corporate – and political – behaviour.
The UK Difference
In the UK, individuals tend to hold more of their wealth in property (50% of the portfolio) and cash (15% of the portfolio) than their counterparts in the US and Australia. In these regions, retail investors generally prefer equities, UK individuals also have the lowest percentage holdings in the G7 (see Figure 2), although the figure for European nations is generally lower than in North America.
There is a lot of discussion about why this might be. Perhaps the UK population is culturally risk averse. According to a survey by the LV=Wealth and Wellbeing Research Programme, conducted in 2024, 55% of UK adults admitted to being more concerned about investment losses than gains and 52% said that they would be more comfortable holding cash in a bank account than investing in shares. It may also be the case that individuals in the UK generally have a less developed understanding of financial markets, which are perhaps not emphasised in their education. LSEG considers that UK-based potential retail investors may not be well enough informed or have access to the right information, although this is a deficit it commits to addressing in future.
Although they are finally now largely a thing of the past, many UK employees were enrolled in defined benefit pension schemes, in which the burden and consequences of investment decision were wholly borne by employers and of little interest to individual pension-holders. Since one of the main drivers of saving and investment is securing retirement income and wealth, it is feasible that this has contributed to the relative lack of individual equity investors. In a related vein, the UK has a comparatively socialised political outlook and, in particular, the provision of taxpayer funded healthcare, pensions and other benefits, as well as relatively robust employment protections, all reinforce a smaller emphasis on individuals and households building their own financial ‘safety nets’, preferring instead to focus on the collective.
There are also some UK-specific government disincentives to equity investment, such as stamp duty, stamp duty reserve tax (SDRT) and capital gains tax (CGT) which may put off some individuals, as might the obligation to complete an annual tax return, but there is a similar situation with housing and property which, as observed earlier, does not appear to significantly deter people from investment.
Figure 2: How Individuals Hold Their Wealth in G7 Nations
Source: Aberdeen plc
Why it Matters
The UK government is concerned about the lack of retail equity investment for several reasons. Only last month, the Chancellor of the Exchequer called for the financial markets industry to change the ‘negative’ narrative around individuals investing their money in stocks and shares in order to help grow the economy and she announced that the government would be consulting with the UK FCA “to introduce a brand-new type of targeted support for consumers ahead of the new financial year”.
The London Stock Exchange Group has also committed to encouraging UK retail investors, with a number of measures in progress, including provision of accessible information and advice as well as the tools necessary for individuals to build their portfolios.
There is concern for the investors themselves – a more diversified approach to wealth and investment can provide better protection and growth for individuals – and better education and increased understanding of the market can clearly be valuable – in contrast to the defined benefit pension schemes of yesteryear, the output of today’s defined contribution schemes is entirely a function of the input contributions and the manner in which those contributions are invested – and the risks and benefits of those decisions now lie predominantly with pension-holders – the individuals – rather than their employers.
On the other hand, from an economic and corporate perspective, the fact that more than half of investment in the UK equities market currently comes from individuals and entities outside the UK carries significant risk. The government and institutional push for the UK population to reweight their globally distributed portfolios in favour of the UK market rather than directing its wealth out of the country, as well as encouraging new investors, aims to address this and drive growth in the national economy.
The Changing Face of Retail Investment in the UK
Over the last decade, there has been a slight change in the way that UK-based individuals invest their wealth. The percentage invested in cash savings products has stayed roughly consistent, while savings put into investment products has risen (although this is slightly offset by a recent fall). Figure 3, drawn from figures published by the FCA, shows that individuals have increased their investments across almost all products, including equities, which remain the most commonly held investment products by some way.
Although the rise may be slowing and we still lag behind other nations, UK retail investment is no longer a fringe market. Over 10 mn of a population of 68 mn now hold equities either via brokerages or stocks and shares ISAs.
It has been noted that this includes a shift towards a younger investor demographic. The increases in investment levels were most significant in the 18-34 bracket. “Research shows 68% of gen Z has already invested at some point in their lives, the highest participation rate among all age groups.”
Figure 3: Investment Products Held in UK
Source: FCA Financial Lives Survey
Pandemic Drivers Do Not Explain Everything
There are clearly a large number of drivers for this rise, and it is not necessarily easy to identify or separate them, or to accurately analyse their individual effects.
The ‘pandemic effect’ has already been widely discussed. There was a well-documented spike in individual interest in investing during this period and up to 39% (and 49% of investors aged 18-34) of those actively investing now started to do so during the pandemic – for a variety of reasons. Interestingly, the younger investors cited more emotional motivations to invest than any functional or social reasons, with the most mentioned motivation being ‘for the novelty or to learn something new’ (although it should also be noted that ‘to diversify my investment portfolio’ which is certainly functional was a close second to this).
Technological evolution and the rise in availability of retail platforms has also played its part. It is certainly now far easier than ever for individuals to access global equities markets and the ‘gamification’ element often highlighted in investment apps should not be overlooked as a factor. Additionally, the fact that modern apps and platforms offer access to fractional shares lowers the barriers to entry further still.
The rise of ETFs has enabled more retail investors to invest in equity-based funds and ‘themed’ funds, which allow investors to effectively build ‘instant’ portfolios in their areas of interest – such as environmentally responsible companies or high risk technology industries.
In addition to the potential disincentives mentioned earlier, there are also areas of governmental encouragement to invest in the equities market, including strengthened investor protection legislation, requirements for companies and asset managers to provide transparent ESG information and tax encouragement through vehicles like tax-free ISAs.
The influence of social media certainly seems to have played a part in motivating the new generation of retail investors, with over half surveyed by the FCA in 2022 citing social media as a source of research. The much-analysed emergence of meme stocks as a social media phenomenon may have piqued the curiosity of potential retail investors, but social media has also changed the way that businesses engage with individuals as well as democratising the way that information is shared – which, as with all ‘crowd-sourced’ knowledge, has its pros and cons.
Opportunity Abounds for UK Retail Brokers
In terms of retail investment in equities, the UK is still relatively extremely conservative compared to, say, the US, but there been a recent rise in interest and investment, albeit one that seems to be slowing and as part of the wider UK retail investment landscape, it should no longer be considered a fringe market.
The combination of economic uncertainty, technological advancement, regulatory evolution and increased financial awareness presents both challenges and opportunities, and a potentially significant market exists if it can be engaged and harnessed effectively.
It is not yet clear whether the emerging generation of young tech-savvy investors is here to stay, but it seems that there is potential opportunity for the government, brokers, advisors, educators and technologists to strike while the iron remains hot, to grab their attention and shape the future of the retail equities market in the UK.
