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IMA: Consumers don’t want to look under the bonnet of investments

Consumers do not expect to know the detail of how an investment fund is run and there is a limit to the disclosure fund managers should provide, according to the Investment Management Association.

Speaking during a panel debate at a conference hosted by the Open University Business School in London earlier this week, IMA director of training and education Victoria Nye suggested there can be “too much” transparency in the industry.

She said: “Investment management is a professional job and you cannot expect to make people professionals overnight by explaining what is going on underneath the bonnet.

“You wouldn’t expect to know how your car runs, so why would you expect to know the detail underneath an investment fund?”

Nye added: “There is an element of trusting the product labelling. The rise of risk targeted funds and solutions-based funds is where people are inherently trusting the labelling, including the advisers who are recommending those types of products.

“There is a clear recognition that we shouldn’t have too much disclosure although it is there if people really want to look at it.”

She was responding to a question on whether transparency can make investments seem more complex and risky.

The investment management industry came under further pressure last week to reform cost structures following a damning report from the Financial Services Consumer Panel.

The panel is calling for the introduction of a single and comprehensive investment management charge which includes estimates of forward costs, including transaction charges. Its research found current cost measures are a “poor guide” to the total costs paid by consumers, conflicts of interest are poorly managed and competition is not working in the best interests of consumers.

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. (Disclosure: I am a consultant working with the best of the so-called alternative finance sector (peer to peer lending, etc)

    Wow. It’s like Punk never happened… This sort of “don’t worry your pretty little head about the details” argument is what has allowed funds to be subjected to 13+ levels of charge that the customer can’t see, fund managers to hide fund failures (crap performance) by merging them with other funds, and so on.

    Recent consumer research shows just the opposite – that the reason this country has £1.14 trillion rotting in cash accounts earning less than 1% if anything, is that Mr and Mrs Consumer are not prepared to invest in things they can’t understand and don’t trust the industry to not shaft them. On top of this, the majority of people want their money to be used for something they believe in, and there is fat chance of that if you hand if over to opaque funds invested in all sorts of planet-burning businesses whilst calling themselves ethical.

    Transparency and clarity have got to be the watch words for any kind of financial service that has got a bright future where both it and the customer can win. The argument put forward in this article was out of date 10 years ago. The fastest growing sector in finance is Peer to peer lending and crowdfunding – and although it has a few of its own “old boys pretending to be the enlightened”, the true stars know that transparency, clarity and openness aren’t nice to haves, they are pivotal.

    Martin

  2. Martin so why do they put their money in bank accounts where there is no disclosure at all.

    Can you imagine people’s reactions if banks had to disclose how they calculate the miserly interest rate on offer and then compare it with the interest they earn on their money lending it to other’s i.e. the profit the bank makes on your money.

    I’m all for transparency but surely it has to be across the board.

  3. So “IMA: Consumers don’t want to look under the bonnet of investments”

    If you said to consumer “would you like to invest your money in to companies which carry out practices abroad, which if they were to do them in the UK would be criminal?” What would most people say?

    Most of my clients say they assume the IMA members would not be investing in anything illegal either in the UK or abroad. I have to then disabuse them of this notion and then some ask me to find a solution and one or teo (but only one or two) say I don’t give a flying xxxx I just want to make MONEY.

  4. At the risk of sounding as thick as two short ones but does current TER not cover this one off?

    I could not agree more with the IMA on this. I don’t know about the rest out you out there but nearly all my clients only want to know two very simple things from me when doing investments. What is it going to cost me in total and is this likely to do better than where it currently is?

    They are not in the slightest bit interested in how the costs are made up. No different to when you are doing the shopping at your local friendly (or not so friendly) supermarket. How many people either look or want to look at the individual items costs on the bill. The seethe bottom line figure and that is all they are interested in.

    @ Martin I take your point if you re talking about the dodgy Arch Cru’s or Keydata’s of this world but you could not be further off the mark if you are talking about the long-standing funds for ISA’s UT’s PPP’s or Bonds etc.

  5. The other day I’m reading that client suitability documents are not client friendly, are too long winded and use too much jargon.

    Here, the debate is that consumers need to know the finer details of everything.

    I’m with Marty on this – the end user is mainly concerned about the net outcome rather than the cost.

    They pay me to ensure costs are effective (i.e. they offer value!) and their aims and objectives are addressed.

    The key issue for me therefore is that I can accurately estalish the cost of something… I genuinely do not believe that the majority of clients are that concerned about the number. just that they are getting value.

    If they spend the time understanding all of the detail, they may as well go that final step and manage their own strategy!

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