Investors are still being hoodwinked into ploughing their life savings into ‘investment’ schemes that promise much and deliver little, writes Roddy Kohn of KohnCougar
This year marks the 35th year of financial services regulation. It is a landmark event, and yet it is eerily quiet. There’s little news showing just how much better off consumers are from the ‘Wild West’ days, when I decided to set up my own business.
Regulation was introduced initially to restore consumer confidence. After all, if you couldn’t get a job as a double-glazing salesman, companies like Allied Doonbar and Shabby Life would scoop you up and give you a carefully worded script. Thus armed, they would send you out into the cities and suburbs equipped with the latest highest commission paying products whose quality was best summed up by that old hit song from Hilliard and Bacharach – ‘Three wheels on my wagon’.
Has your client’s confidence increased?
Fast forward 35 years and a new world order exists. The double-glazing salesman have had their wings clipped. Our fictitious organisations, Allied Doonbar and Shabby Life, have been absorbed seamlessly into new shiny things stylishly renamed St Jim’s Palace and Black Horses Gallop. World order thus restored. Consumers have short memories. Rebrands certainly help.
But has your client’s confidence increased? Is there a noticeable uptick in their desire to save and invest in pensions and investments? My guess is that the answer is no. And this is supported by the latest FCA research that highlights that 54% of UK adults with £10,000 or more of investable assets, around 8.4 million people, did not receive any formal support to help them make investment decisions.”*
Ironically, despite the billions poured into boosting consumer confidence, getting product costs and charges to rock bottom levels and more choice than ever, consumers remain very confused. Confusion, let’s face it, doesn’t create confidence.
One such example is costs and charges. All our clients receive endless amounts of data from us, our platform provider, online on their apps, and there’s a familiar thud at the start of the year when an annual summary rocks the four walls of their homes with its weighty ‘tell-’em-everything-warts-and-all-and-tell-’em-thrice’ report. I’m serious.
Investors need support
So the principle has been great: ‘be transparent’. The outcome: “I’m confused.”
The master plan is failing. Investors are overwhelmed. How can I be sure? Well, the FCA report goes on to state: “Many consumers do not seek, or receive, the sort of help with their finances that would equip them to make better investment decisions.”
To begin with, DIY platforms have managed, yet again, to find loopholes that make a mockery of disclosure. Links to costs and charges often don’t work. If they do work the consumer needs to make additional entries in order to get the real result.
This results in clicking on more links across more pages and only a master jigsaw champion could piece it together. When investors are firstly greeted by an over-simplistic web homepage that announces ‘trade for £9.99’ in six-inch-high letters, that’s all you need to know. Isn’t it?
Er, not quite. Chuck in an ‘§’ smaller than a full stop and the whole setup is designed to dupe consumers into believing the only thing that matters is price. As usual, that is never the full story.
‘Guidance’ not all that it claims to be
And yet these tricks are managing to catch all and sundry. One retired teacher who recently self-invested (NOT protected) her tax free lump sum and savings into a high-risk investment lost £170,000 when it turned out to be a bitcoin gamble. Frankly, there are legions of foolish investors. What makes them foolish is the excessive information designed to inform and educate, when frankly it just bores to the point of “I give up, I’ll just buy this thing.”
Costs and charges disclosure by advice firms is the opposite end of this spectrum. There is no place to hide. Investors are faced with multiple disclosures. What’s more, most struggle to understand that the fund manager charges they pay when they have an adviser are often the same as those when they invest DIY without protection, with misleading advice sneakily called guidance (that’s how you get around the rules by the way), expertly constructed by a master wordsmith called a copywriter.
DIY investors at risk
What’s worse, it really does not dawn on most DIY investors that they don’t have the highly valuable protection of the regulator to turn to in the event of making an unsuitable investment. That disclaimer too is neatly obscured and wrapped in nebulous terms such as ‘find a suitably qualified adviser’.
Faced with an overload of information on one side (advice) and a dearth or deliberately difficult information to process from the DIY platforms on the other, the average consumer is manipulated into believing price is the only consideration for a lifetime’s saving. This is worth repeating. Many a ship has been spoiled ‘for an ha’-penth of tar’. Cutting corners with after-tax hard-earned savings is folly. Even our accountancy and solicitor clients struggle with the breadth and depth of investments, what is suitable for their goals and what the costs and charges mean.
Is it time for an independent review?
Financial regulation was desperately needed when I started out. Consumers have benefited enormously from its introduction. Sadly, those organisations who were at the root cause of the problem have simply used their financial might, PR and marketing skills to exploit the consumer in new and subtle ways. This has led too many to lose their life savings, make bad investments, pay more in fees than they need to (and often for poorly performing funds), or worse still end up losing faith in the idea that saving for their future makes sense.
Perhaps we should not be surprised that after 35 years of regulation we are yet to see an independently commissioned survey of consumer confidence in financial services. Could it be that we all know the outcome in advance?
*Evaluation of the impact of the Retail Distribution Review and the Financial Advice Market Review – Financial Conduct Authority December 2020