Consumers have lost confidence in financial services

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Financial services industry ‘lost Joe Bloggs consumer trust’, says KiwiSaver boss as FSC releases investor study

Wednesday, August 10, 2022, 8:10 a.m.

by Jenni McManus

On the heels of the FMA’s 130-page report on consumer attitudes towards the financial services industry, the Financial Services Council (FSC) yesterday released a survey of New Zealanders’ views and trends on of investment.

Among the main conclusions of the FSC:

  • four in five respondents have investments and most (88%) go online to manage their finances;
  • a growing number (18.6%) have used micro-investment platforms like Sharesies and Hatch and 15% are considering doing so;
  • most (68%) make risk-based decisions to protect their wealth, while only 33% choose higher risk/return investments. Investors are more wary than in 2021;
  • adoption of ESG investments is low, with 85% of respondents saying they don’t know or don’t know if they hold such investments, while 21% worry about the risk of greenwashing;
  • cryptocurrency is down, with 14% fewer Kiwis investing compared to the same period last year; and
  • privacy and security concerns are far less than in 2021.

FSC chief executive Richard Klipin says that while most New Zealanders are investing, it’s good news the research raises concerns and trends that need to be addressed.

“A fifth of Kiwis who don’t have KiwiSaver say it’s because they don’t trust the program or they’re confused and compared to 2021, fewer respondents said they understood the relationship between risk and return,” says Klipin.

“It is also worrying that concerns about the privacy and security of personal information are on the decline, despite 88% of us using online digital tools to manage our finances.”

Ryan Bessemer, the CEO of Trustees Executors who sponsored the research, says trust is a major issue for the industry “and our main duty is to make sure we create an environment of trust and break down the jargon”.

Bessemer says it’s concerning that 20% of the available investor population choose not to engage. In part, he attributes it to “continued product confusion” and in part to “the traditional thinking of investing in real estate rather than markets and funds.”

“But at the end of the day it comes down to literacy,” he said during a webinar hosted by the FSC yesterday to discuss the research. The findings are consistent with the FMA’s recent consumer sentiment survey, Bessemer said.

Citing research done by his company ahead of a national tour, Kernel Wealth CEO Dean Anderson said most Kiwis seemed unable to identify their KiwiSaver provider, let alone know if they were in the right type. of funds.

“It’s a big step beyond knowing who the supplier is and where 3% of your fortnightly pay goes,” Anderson said.

Much confusion has been created around the terminology used to describe funds as conservative, balanced and growth “without realizing that there is actually a broader spectrum in there”.

“We’ve probably poorly articulated as an industry around ‘conservative’ as being something to use within a one to two year time frame,” he said. “People have been taken by surprise so far this year, with Conservative funds rolling back. I think we need to be better at this overall service offering and how we’re going to articulate these things.”

On the issue of trust, Anderson said, “The reality is that the industry has lost the trust of consumer Joe Bloggs.”

“Fintechs have now taken the lead in terms of consumer confidence compared to traditional financial services. So there’s a lot to be done to reconnect with consumers and help them make better decisions.

“It carries over to what we see with broader asset classes – it carries over to what we were seeing in behavior around crypto and why younger groups and minorities are turning to cryptocurrency. “

Anderson said minorities and fringe groups are drawn to crypto and other more speculative or newer asset classes because they don’t feel part of the mainstream financial services system, they don’t understand it. and “they view them as a golden ticket that they can use as an escape”.

Worse still, he says, these groups typically don’t have high levels of available assets, but tend to invest 100% of what they have. The financial services industry needed to move that mindset away from returns — and even risk — and instead focus on more useful behaviors.

“These are the things that the consumer on the street can process and understand: if I set aside $100 a week, that’s what it’s going to mean to me. So probably the biggest challenge is trying to turn a behavior that’s going to have a long-term benefit into something tangible for them today,” Anderson said.

“[But] which competes with the instant gratification of short-term speculative returns. We’ve now been hardwired from social media to be drawn to instant gratification, so there’s real tension there too.

“We need to move away from a short-term focus on long-term behavioral outcomes.”

In terms of other investments, Anderson said New Zealand had a good commitment to KiwiSaver, but the trick now was to reset investors’ expectations of what a good return looked like (“it’s not 50% per year”). “We need to take that commitment and turn it into long-term adherence.”

It was also encouraging to see that there had been no panic selling over the past few months. “Markets are down, that’s resetting expectations, so hopefully we don’t have what we’ve had in the past where a generation of investors are fleeing the markets and not coming back,” Anderson said.

Of the 2,000 people who took part in the FSC survey, KiwiSaver was the most popular investment (78%), followed by cash (excluding time deposits) at 54%, New Zealand stocks (30%), managed funds (17%), direct ownership (13%), ETFs (8.2%) and crypto (6.2%). This is broadly in line with the findings of the FMA last week.

Of those without KiwiSaver, 29.8% said they had not worked since KiwiSaver launched in 2007, 23.1% said they would rather invest their own money, 21.3% said they preferred to have their own money, 18.6% said they did not feel the need for it, 13.5% said they had no confidence in the device and 9.2% said the system was too confusing.

Only 53.5% of respondents said they had a good or very good understanding of the relationship between risk and return, compared to 58.6% in a similar survey last year.

Nearly 90% use smartphone apps, online banking, insurance, and KiwiSaver platforms and micro-platforms to access financial services, and a further 4.5% say they intend to use them.

Tags: FSC

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