Reeves green lights new Access Bond regime to improve retail investor accessibility to Corp Bonds

poseidon1

In the wake of the equity markets now  beginning to appreciate the implications of new proposed Trump tariffs over his  Greenland ambitions and the EU's potential retaliation thereto, the following announcement yesterday was overshadowed -

https://www.ii.co.uk/analysis-commentary/proposals-ease-corporate-bond-access-retail-investors-ii537853

https://www.lseg.com/en/insights/bond-with-britain-and-its-capital-markets

Personally, as an enthusiastic corporate bond investor ever since the introduction of the Order Book of Retail Bonds (ORB ) in 2010, I have to question the wisdom  of trying to entice small retail investors into this sector with unit purchases as small as £1.

ORBs already  had a  typical minimum issue thresholds of £2,000, and the investment platforms who hosted access to these bonds eventually decided ( rightly in my view) that even at that investment level,  potential investors have to demonstrate sufficient understanding and sophistication before being allowed to invest (there is a periodic test to pass). 

As for UK corporate debt issuers, I would very much doubt that they would be overly keen to open the floodgates to new  retail investors who can barely comprehend UK Gilts let alone the complexities inherent with corporate debt. Accordingly it will be interesting to see what kind of corporations (if any) choose to launch new issurances that qualify for listing under the new 'Access Bond' regime.

Also interesting to note this initiative comes at a time when Reeves is simultaneously considering the expansion of short term Treasury Bill  issurances, again with a new cohort of retail investors in mind.
Thread below refers - 

https://forums.moneysavingexpert.com/discussion/6649165/government-consulting-on-ways-to-incentivise-greater-retail-investor-take-up-of-t-bills#latest

Overall, coupled with the government's desire to 'nudge' the public into the direction of UK equity investing,  the overall messaging is frankly confusing.

masonic

As someone who otherwise would have viewed this as a positive development from a personal perspective, I'd like to understand more about why it might be a bad thing to participate in something like this. Or is it just the risk of people not understanding what they are investing in?

DavidT67

Retail investors already have fractional share access to corporate bonds via certain platforms.

What's the appeal of UK T-bills to retail investors ?  None that I can see.

poseidon1

masonic said:

As someone who otherwise would have viewed this as a positive development from a personal perspective, I'd like to understand more about why it might be a bad thing to participate in something like this. Or is it just the risk of people not understanding what they are investing in?

The thread below  is an example of my concern of the kind of hazard that can arise if retail investors are given unrestricted access to corporate bonds with no guidance and tutoring.

https://forums.moneysavingexpert.com/discussion/comment/81386800#Comment_81386800?utm_source=community-search&utm_medium=organic-search&utm_term=thames+water+bond

The OP in that thread started  harmlessly enough by querying  the pros and cons of gilt investing. However his further 'research' ( ie looking at bonds available on the HL platform) entered dangerous waters when he flagged the Barclays 5.75% 2026 as appearing to him to be an attractive option backed by a solid long established  and 'safe' financial institution. 

Fortunately, was able to explain that that particularly bond was designed to be 'sacrificed' by Barclays if they ever ran into problems as a bank ( ie a tier 2 subordinated security), but one would not have been aware of this from the paucity of information supplied by HL. Therefore for a newbie investor, they would have insufficient knowledge to properly judge the risk versus reward of a particular bond issue with these uncommon characteristics.

On the plus side HL would not have allowed the OP to intially invest in corporate bonds without passing a mandated FCA complex investment test as below -

https://www.hl.co.uk/help/buying-selling-investments/bonds/before-you-buy-bonds

Hopefully such tests will remain mandatory for bonds listed on the new Access Bond register to act as a soft deterrent for those who would jump in without tuition.

masonic

OK, so a knowledge gap. I take your point. This is reminiscent of the push toward consumers investing through P2P lending, which ended badly for many. Though I'm not suggesting the corporate bond market is anywhere near as seedy as P2P.

friolento

Agree, this is confusing and will go straight over the head of most retail investors. May be the platform providers can come up with some smart solutions which retail investors can easily understand, but there is a lot of potential for unhappy outcomes. 

Theleak250

Well my policy is, as a "man on the street" is not to put money where I have no understanding of where it's going. If people decide to go ahead then it is there risk. I certainly, having no understanding of these products, will not be investing. 

aroominyork

Theleak250 said:

Well my policy is, as a "man on the street" is not to put money where I have no understanding of where it's going. If people decide to go ahead then it is there risk. I certainly, having no understanding of these products, will not be investing. 

Without wanting to get too Rumsfeldian about unknown unknowns, there are numerous aspects of investing which people think they understand, only to get an unexpected wake-up call. Many of those who starting DIY investing in the last decade only grasped duration risk after interest rates rose in 2022. You often have to experience something before you understand it or, indeed, believe it can happen. After all, that's why the stock market is going to keep rising for the next ten years with only minor blips!

Frequentlyhere

aroominyork said:

Without wanting to get too Rumsfeldian about unknown unknowns, there are numerous aspects of investing which people think they understand, only to get an unexpected wake-up call. Many of those who starting DIY investing in the last decade only grasped duration risk after interest rates rose in 2022. You often have to experience something before you understand it or, indeed, believe it can happen. After all, that's why the stock market is going to keep rising for the next ten years with only minor blips!

This is spot on. The amount of people I come across in a FIRE context who set out their investing plans based primarily upon the 'standard' 10% long run average a year return for the US stockmarket is scary.

Likewise a huge number who are very sure they're totally fine nearing the point of retirement with 100% equities minus a year or two spending. What's the point of bonds, look how badly they've done!

Coming back to the topic, I'm a relatively experienced but largely passive investor who has always felt corporate bonds were not the place to be and had far too much potential for blowouts. I cannot fathom why the Govt would think this a good idea for the average person, especially given they often come with an alluring 'simple' high percentage interest rate.

aroominyork

Frequentlyhere said:

Coming back to the topic, I'm a relatively experienced but largely passive investor who has always felt corporate bonds were not the place to be and had far too much potential for blowouts. I cannot fathom why the Govt would think this a good idea for the average person, especially given they often come with an alluring 'simple' high percentage interest rate.

And I'm a relatively inexperienced investor (about seven years in) who likes corporate bonds, maybe because I have not experienced a blowout! But as I said in this thread, they are an area where active management by a professional manager - not by individuals making the kind of Barclays mistake mentioned above - seems worthwhile since the index funds are in the lower reaches of the league tables. 

poseidon1

aroominyork said:

Theleak250 said:

Well my policy is, as a "man on the street" is not to put money where I have no understanding of where it's going. If people decide to go ahead then it is there risk. I certainly, having no understanding of these products, will not be investing. 

Without wanting to get too Rumsfeldian about unknown unknowns, there are numerous aspects of investing which people think they understand, only to get an unexpected wake-up call. Many of those who starting DIY investing in the last decade only grasped duration risk after interest rates rose in 2022. You often have to experience something before you understand it or, indeed, believe it can happen. After all, that's why the stock market is going to keep rising for the next ten years with only minor blips!

Have to agree wholeheartedly. Been  investing in some capacity  or other since age 20. At age 68 Still learning!