I read with interest [read: disquiet] the other day about UK digital bank Zopa Bank’s beta roll-out of Zopa Investments ( ZI ), its first customer foray into investing. It follows similar developments in retail banks’ fast-emerging investment product segment.

Starling Bank has partnerships both with Wealthify ( the digital investing service owned by insurance company Aviva ) and Nutmeg, JP Morgan’s personal investing platform. TSB Bank also has an investment partnership with Wealthify. Monzo Bank has an investment arrangement with BlackRock. Weatherbys Private Bank has partnered with digital investment platform Saxo Markets. Revolut launched Revolut Trading, while digital bank Chase UK has an internal arrangement with Nutmeg.

Investment gaslighting

My disquiet, let me be clear right up front, is not linked with the banks providing the investment services. I didn’t look at that aspect. My issue is with the government-sponsored gaslighting it supports around riskless investing, and the official hectoring of banks to offer unsophisticated and unsuspecting consumers opportunities to put their hard-earned money at risk in the securities markets. At the same time as taking customers out of the comfort of UK deposit protection – about to go up from £85,000 ( US$ 111,295 ) per institution to £120,000 – into the much murkier and delimited area of investment protection; all while giving banks a new source of fee generation.

In the case of challenger banks and neobanks that have gone down the route of giving clients investing options ( mainly with non-proprietary products embedded in proprietary banking apps ), the marketing is all about long-term prosperity, with the associated deprecation of holding cash. This from the very banks whose messaging has long been focused on their ability to take deposits from the national champions. Oh, the irony …

In its press release, Zopa’s chief strategy officer Merve Ferrero says she reckons UK consumers sit on billions of pounds in cash because they don’t know where to start. In the time-honoured phrase, she would say that, wouldn’t she?

The majority don’t invest because they don’t want to. It’s a socio-cultural factor reflecting the psyche of UK consumers and their relationship with money. They like the idea of a fixed return with a licensed bank covered by deposit protection more than the anxiety of stock or bond market volatility or the risk of loss. Or, actually more likely, because the thought of investing their hard-earned cash in the stock or bond market just doesn’t enter most minds, even through ready-made funds.

Enter the gushing political PR quote, this one from Lucy Rigby, economic secretary to the Treasury and City, who in fluent government propaganda-speak called the launch of ZI a major step towards opening the doors of responsible investing. Alongside a bunch of other glib, empty words, including that Zopa is helping a new generation of Britons “sow the seeds of long-term prosperity and a deeper connection to the nation’s economic growth”.

Risk warnings?

I’ve expressed my concerns before about banks embedding easy-to-use – easy-to-lose? – investment options into consumer banking apps. I was sharply reminded of my anxieties less by the launch of ZI ( it’s an industry trend ) but more by the lack of any visible risk warnings in the release material or on the ZI website. In fact, I didn’t see risk mentioned once!

Aimed at first-time customers who hold more than six months’ income in cash but who don’t invest ( bizarrely referred to as ‘excess cash’ ), Zopa says it will initially offer two Invesco ESG funds – balanced and bold – from the mega-asset manager’s Summit Responsible risk-targeted range of five multi-asset portfolios spanning lower to higher risk. Let me also be clear here that I have no issue either with Invesco or its funds that are initially driving ZI. The balanced fund Zopa went for is the third on the Invesco risk spectrum. Bold, though, is the riskiest in the range!

These initial fund offerings will be followed at a future date by a selection of Exchange Traded Funds as well as what Zopa calls – wait for it – ‘user experience additions’ ( oh oh… ). This will include insights and prompts the bank says are designed “to help customers get the most from the product”. I sense hard sell.

Long-term prosperity. Whose?

Back to this notion of long-term prosperity. The balanced fund that Zopa will be offering has, according to the bank, generated an average annual return of 4.5% since launch. The average annual return of the bold fund is 9.3%. Hold on: 4.5% is around the same as the fixed interest currently paid on no-notice savings or on one-year bonds. Not much of an endorsement to switch given the downside. And while 9.3% is clearly above anything you can get in the UK deposit market, it’s a return that shouts risk – especially with the 4% UK base rate likely heading to below 3% by 2027.

As a quick aside, by the way, I searched a tonne of Invesco fund documents for that average return data. In vain. It’s not there. Zopa chose to calculate the funds’ average return figures for a different timeframe to Invesco’s usual reporting. Invesco reports the historic yield of its balanced fund ( i.e. distributions declared over the past 12 months as a percentage of the fund’s mid-market price ) at 2.41% and the bold fund at 1.73%. Just saying …

The basic difference between the five funds in the Invesco range is the asset allocation. The higher along the risk spectrum, the greater the allocation to equities. The balanced fund is 48%/52% equities/fixed-income; the bold fund, 83%/17%. And each of the five funds is designed to target a distinct level of exposure to equity volatility. The balanced fund has a 45%-75% volatility slew relative to the MSCI AC World Index; bold, a 75%-105% volatility skew.

Incidentally, Invesco says its bold fund is targeted at growth‑oriented investors. That’s missing from Zopa’s narrative. I guarantee some first-time investment customers – including those who won’t know if they are growth-oriented – will have their heads turned by Zopa marketing an average return of 9.3%, which they’ll equate erroneously to a cash return.

I don’t like this. Banks should be banks: solid, boring and risk-conscious, offering solid, boring banking products. Investments should be left to discrete platforms that demand active outreach and engagement from consumers who’ve made that decision free from the soft soaping and hard sell from the banks on whom they depend for their day-to-day financial health.