INTERVIEW How funds can win with first-time investors as 83% choose other options

Alex Sword


The Financial Services Forum

While various market conditions have created a new cohort of first-time investors, a new report shows that only 17% of these are using funds.

Jeremy Fawcett, Head of Platforum, which conducted the research, tells FSF that there has been a “perfect storm” of factors. The “UK D2C: Market Update” is based on a survey of 200 UK adults who had started investing in the last two years as well as further qualitative interviews with 29 of these.

“You’ve had a number of things happening at the same time,” he says, citing the impact of the pandemic such as the additional time, privacy and convenience afforded by working at home and an “unexpected windfall of savings” from the absence of commuting or social activities.

“That’s all combined with high profile media stories around the success of [certain] stocks.”

The research finds more than four-fifths of these investors prefer directly buying cryptocurrency and shares rather than going to funds. So how much of this is down to fundamentals (fees, returns) and how much is down to branding and messaging?

“Funds have got a bit of an image problem. What the industry needs to put its finger on is what is that image problem.

“My personal view is it’s a lack of understanding rather than any antipathy towards individual brands. There’s quite a lot in funds: you need to understand diversification and the connection between risk and return.”

He adds that in an industry traditionally based around intermediation, the message can be lost when marketing directly to end investors.

Jeremy contrasts this with shares, where it is “much more clear” that customers are buying part of a company on the basis of future success.

The research suggests that the level of knowledge in these first-time investors is “pretty low”, while confidence is “pretty high.”

“This is kind of understandable in a rising market,” says Jeremy. “We do see the current situation as a bit fragile to be honest.”

The report also looks at attitudes to cryptocurrency, where the picture is far more nuanced than some media portrayals of naïve, gung-ho investors.

In fact, it suggests people are well aware of the risks, while viewing the additional savings accrued during the pandemic as something of a bonus.

“We’re noticing it’s not really a binary decision. It’s not shall I put all my money into cryptocurrency – when people are thinking about it they’re often putting quite a small minority of money in.

“It’s that fear of missing out if this is going through the ceiling, but they’re not going to bet their life savings on it.”

However, Jeremy does highlight some worrying types of behaviour.

“On this point about overconfidence, people are saying they have a good understanding of diversification but then define this as not just buying bitcoin but buying Ethereum as well.”

Fund managers are not going to fix these perception and understanding issues overnight or with simple messaging, Jeremy warns.

“I hate to use the expression ‘education’ because as soon as they talk about it the marketing normally goes off in the wrong direction.

“The last thing consumers want is education.”

He talks about taking the new cohort of first-time investors on a “journey” and “converting them from short-term speculators”. This means being clear about the returns that are reasonable to expect in the long term.

“Quite a lot of consumers we’re surveying have unrealistic expectations about investing. They are really thinking they can generate a significant income from a relatively small amount of money.

“The industry has got to get people to understand what they’re doing and what sensible and sustainable investing looks like.”

On the topic of sustainability, he highlights that ESG has potential cut-through with first-time investors.

“It’s a fairly rich area of content that asset managers can use to engage younger people.”

Jeremy also highlights retirement as a way of engaging these investors, with auto-enrolment potentially helping to trigger engagement.

He highlights some examples of firms that are getting it right.

“Interactive Investor has just set up a money show with Gaby Logan fronting it. They talk about money issues, savings, investment issues, with celebrities like Richard Curtis.”

He also highlights Vanguard as “pressing a lot of the right buttons” with recent advertising.

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