One survey (by Aegon) said nearly two in three baby boomers (those aged 55-73) shunned all or nearly all investing because they feared or did not understand investment risk while the other (by Scottish Friendly) found that nearly 4.4m investors were put off investing completely because they found the choice of funds utterly bewildering.
Both surveys researched about 2,000 consumers, enough be a representative sample.
I should add that I make a clear distinction between holistic Financial Planning advice which may, or may not, involve buying funds and does not, in my view, involve ‘selling funds’ and the average consumer looking to invest some money in the stock market (direct or otherwise).
They are not the same but it’s a fact that much Financial Planning and financial advice involves portfolio management and a recommendation to buy funds.
Advised clients have the benefit of a qualified adviser to remove the confusion on what to buy but many millions of savers cannot afford financial advice or lack trust in using an adviser. The classic ‘where do I start’ issue is also apparent.
The problem here, if these surveys are correct, is that a large proportion of the British public does not trust investing at all and will, probably, never become a planner’s client as a result.
I suspect the many Pension Freedom users who have withdrawn money from their pension and stuck it straight in to a bank account paying virtually no interest are a classic example of how confusion and fear are encouraging savers to make bad choices.
So how did we end up in this mess? Lack of trust in financial advice and financial advisers is one reason. The failure of the fund sector to reach beyond a very small number of investment enthusiasts is another.
The surveys tell us most investors want a selection of 50 decent funds (or fewer) to choose from, not a range of 2,000+ with baffling and poorly explained fund classes. We’re in a pickle and I can’t see that changing without radical reform.
Accepting that smaller investors will probably always find investing choice challenging, the long term way forward is to make it easier for investors to get advice at a lower cost.
Investing is not a game for amateurs but consumers can be helped with a lower cost advice operation that simply aims to help them avoid making bad mistakes - keeping clear of the ‘dog funds.’
A clearer risk warning on funds may help too - the risks on a gilt or bond fund are not the same as those on an emerging markets country fund. Simply warning ‘your investment can go down as well as up’ is not particularly helpful.
There is much to do to encourage millions more to invest and enjoy the benefits.
Kevin O’Donnell is editor of Financial Planning Today and a financial journalist with over 30 years of experience. He previously worked for the Financial Times Group and in daily and weekly regional newspapers.
• PS, I’m taking part in an all-night sponsored walk around Manchester to raise cash for a wonderful local hospice which has helped thousands. Find out why and donate here: bit.ly/2Er343F