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Most people have zero risk appetite, FSA finds

The majority of people have no risk appetite at all when it comes to investments, the latest research by the FSA shows.

The FSA Consumer Awareness Survey 2011 also reveals almost one-in-five people received some form of financial advice in 2011.

According to the poll, 61 per cent of respondents are not willing to take any risk with their investment. Only 4 per cent of the 2,063 people taking part are prepared to take more risk in the hope of securing higher returns.

According to the regulator, consumers have become “slightly” more risk averse since similar research was carried out in 2010.

The number of people not willing to take risk with investments increased by three percentage points over last year, while those prepared to accept more in pursuit of returns has dropped by two percentage points.

“This is not surprising given the uncertainty surrounding financial markets,” the FSA says.

The survey also shows people who own shares directly are the most likely to take risks to gain higher returns, with 8 per cent putting themselves in this category. Some 7 per cent of those with unit trusts, equity Isas or personal equity plans have a higher risk appetite.

In addition, the poll reveals that 17 per cent of respondents have received professional advice about a financial product in the past 12 months, with 47 per cent of these using an independent financial adviser. Some 41 per cent saw an adviser at a bank or building society, while 12 per cent got guidance from other sources such as accountants or solicitors.

“It is important that when people receive financial advice it is appropriate to the individual’s circumstances and they have confidence and trust in the advice received,” the FSA says.

The regulator’s research shows 61 per cent of those who sought advice from an IFA are very confident it was appropriate to their circumstances, while 30 per cent are fairly confident.

Looking at banks and building societies, 33 per cent of consumers are very confident this source was appropriate for them and 55 per cent are fairly confident.

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Comments

There are 33 comments at the moment, we would love to hear your opinion too.

  1. Consumers, of which I am one, are fickle things. 61% state they don’t want any risk, yet I’ll warrant the majority of those are holding cash deposits that are steadily losing 2 or 3% in real terms every year. But that doesn’t matter, as the balance on the building society passbook is going up so it must be ok…!

  2. But do they realise that the higher the interest rate then potentially the higher the risk of the bank going bust?

  3. Incompetent Regulators Award Team 3rd February 2012 at 4:00 pm

    Oh yeah, so lets give all our money to banks as it’s really safe there isn’t it!!!!!!!………..

    mmmmmm……….2008 crash……….

  4. MMM Interesting.

    I think I may start “polling” my clients to confirm their attitude to risk?

  5. It is only a 3% increase from the 2010 survey, which given the current economic climate is quite good. However, what is quite worrying is that 34% of those who don’t want any risk at all say they have direct equity investments!

  6. Most people is not the market for most Ifa’s.

    Most people take little risk in their life, they are more scared of losing what they have than what they may gain by taking a risk. People who take risks generally achieve more but of course there are times when things do not work out. Be brave, be different in life! Go out and achieve, make things happen.

  7. Thanks for that Mr FSA, spend yet more of our money on a survey of the ignorant. The good news though it using your new intervention powers you now have the justification to ban 61% of risky investments as there is clearly going to be no demand for them, then focus on “authorising” the rest for consumer use. Once done remember to sack 61% of your staff and your work is complete. Hang on won’t these 61% of non-risk takers walk into their bank to deposit funds and unwittingly be sold an investment. Damn ! back to the drawing board.

  8. Innocent Bystander 3rd February 2012 at 4:24 pm

    Interesting that adding the very connfident and fairly confident levels together shows only a 3% difference between IFA’s and the Banks and Building Societies.

    The IFA’s have a stronger very confident position which may be reflective of the much better personal service they provide or it could be the quality of recommendation (hard to tell).

    Given that ‘fairly confident’ would indicate satisfaction intermediaries appear to need to up their game a bit to get consumers to see the benefit of using their services over the banks and building societies.

    This is the case even if you believe the banks and building societies quality of advice/product sales are poor and the customer doesn’t know what he doesn’t know.

    The issue is about perception – when the perception of the customer is that they will get better advice using an IFA that’s what will make the difference. No amount of moaning and groaning in these columns will do that for you.

  9. More bad statistics as per usual.

    Rubbish mixed statistical measures:-
    ‘Three out of five people receiving advice from an IFA were very confident that the advice was appropriate to their circumstances — compared with 33% of those going to banks or building societies.’

    Unrepresentative selection of respondents:-
    Can you believe that somewhere between 22% and 23% of those surveyed have no financial products whatsoever – including a simple bank account. Who are these people? Is it possible to randomly select 2,064 people and find that 474 have no bank account?

    Bejesus!

  10. Roger Chadbourne 3rd February 2012 at 4:27 pm

    I would like to know how intricate and searching was the survey questioning.
    Mine is a series of over twenty questions, but having come to a conclusion there involves a long and detailed discussion on the meaning and reality of risk, of definition of loss and comparisons to various risk areas, from stuffing it under the mattress to the 3:30 at Chepstow.
    Invariably the client re-assesses their initial reaction to a more reasoned and logical approach.
    A “survey”, unless it contains a comprehensive questionnaire into ATR, is bound to return these results.
    I suspect that those 15% who were more attuned to a realistic risk profile had good IFAs!

  11. Reading this article makes me realise how far my clients are from the norm of these FSA statistics.

    I agree with anon 4.15pm that these average clients are not for IFA’s. It also shows how poorly financially informed the ‘average’ person is.

    That is sad really, as so many people spend their lives missing opportunities due to the paralysis of fear.

  12. The blind leading the blind. The FSA uses the word ‘risk’ in a very special way which most consumers don’t know or care about. Try speaking the same language – that’s why we need intermediaries!

  13. And a recent survey discovered that 100% of FSA surveys are a complete waste of time and money …….

  14. shelley robertson 3rd February 2012 at 4:37 pm

    As the UK’s leading risk profiler, we can can say that over the last 3 years, more than 350,000 risk profiles have been conducted using our Dynamic planner software and the most popular profile is 5 (low medium risk). Clearly these reults are from investors rather than the general public and support what our IFA colleagues are saying!

  15. 47% of the total survey population said they were not prepared to take any risk with their savings or investments. 37% of the proportion of the survey population which does own equity ISAs / PEPs / unit trusts said they were not prepared to take any risk with their savings or investments.
    60% own a bank account but no other financial savings / investment product whatsoever.

  16. It seems that 57% of respondents to the survey are aware of, or assume that there is, a financial regulator and yet 67% think that the financial regulator is an effective regulator!

    Hmmm, it seems that you could make it up!

  17. If the FSA knows of something that is truly zero risk, I would be interested to know of it.

    It certainly does not apply to Northern Rock, or even the once mighty Halifax.

    Government Bonds? Tell them that in Greece.

    I think perhaps the FSA, and possibly most consumers, has zero understanding of risk.

    How many of those questioned will avidly watch the National Lottery in the home of winning “millions” on their “investment” when the chances of coming out ahead are virtually nil.

    There is no such thing as zero risk. You can manager risk, you can accept one risk in preference to another but you cannot simply eliminate it from your life.

    Avoid the risk investing in a pension and you simply replace it with the risk (or even certainty) of an impoverished retirement.

  18. Perhaps the poll should also ask these people to quantify the level of risk that they would be willing to accept as a percentage. I’m pretty sure there are more than just 2 states, i.e. willing to take risk and not willing to take risk. How many of these people also keep their money buried in a safe in the foundations of their house?

  19. It depends upon how risk is put across knowing the FSA and the fact that most if not all have never been financial advisers then clients are probably totally confused in which case they will always say no unless fully explained by a Finacial Adviser on a face to face basis.

  20. I suggest that some people are medium to high risk when you arrange their investments and become low risk when they go down–guess who gets the blame?

  21. Ahhh yes, another completely unloaded survey. I bet the question was: Do you a) want all your money safe in your friendly bank or b) given to a financial adviser with horns to lose on the horses that same day.

  22. May we know (and perhaps see) exactly which risk profiling tool was used as the basis of this research or, failing that, just what questions were asked?

    If you ask carefully selected questions in a certain way, you can engineer your research to produce whatever outcomes you have in mind before you interview your very first subject.

    This is why the products that the banks sell by the boatload tend to be five year capital-guaranteed FTSE-linked investment bonds. All you have to do is choose and frame the risk questions in such a way as to make what you want to sell the customer the only “suitable” option.

    Then again, we have no idea just what methodology was used for this research and, given that the FSA is anything but the “open and transparent regulator” that it claims on its website to be, nor are we ever likely to.

    But it may be worth somebody asking if the FSA is prepared to release this information. If the FSA has nothing to hide, then it’s hard to imagine on what grounds it might refuse such a reasonable request.

    I have clients of all ages and all risk profiles and my client bank is, I imagine, completely typical of those of most small IFA’s. Certainly, nothing like 61% of them are totally risk averse, as this research from the FSA suggests. Whilst few starting out for the first time in the currently uncertain global economic climate, would probably class themselves as adventurous, those who’ve been invested for a number of years are very much more sanguine about things.

    Would Warren Buffett answer Yes to the question Would you be prepared to commit to investments that pose a high risk that you could lose money? Probably not ~ yet here’s a man whose own portfolio contains stocks that he’s held for 30 years and more.

    Of course, nobody is blase about the possibility of losing money and ordinary people are naturally fearful of what’s currently going on in the world at present. When it comes to risk profiling, all the questions are interconnected to some degree or another.

    So really we need to know just what questions formed the basis of this research before we can offer comment as to its validity or otherwise. It might even have been nice if the FSA had sought input from the client-facing IFA community in designing the structure of the research, but the chances of that are hardly great, are they?

  23. I can’t imagine that this “survey” has been done in a fully scientific way. For example was it made clear to people questionned that money in a mattress carries a risk, as does money in the bank.

    I’ve never had trouble getting clients to see that all things with money carry risk. That is not to say that every potential client has wanted to take my recommendations.

  24. Its true – most people don’t want to take risk with their money, why would you if you didn’t have to? We ran a survey with NOP of 1000+ people which said exactly the same thing. The challenge is that low/no risk means low/no returns. Educating customers as to the trade offs and the risks that they are willing/ can afford to take in order to help meet their goals / ambitions is a central role of advice and advisers

  25. I had a client who managed 280% growth one year, he cashed it in PDQ thanks to my advice and then put 20% of the proceeds into another investment that went down 20% in a year, guess what, his appetite for risk vanished PDQ, he fancied a complaint, he didn’t make it past the first hurdle.

  26. When I read glaring errors in reports like these, I really do wonder at the competence of the people involved. The people at the FSA seemingly have no up to date knowledge of products that make up the market place, and the people asking the questions clearly haven’t a clue.

    Why are they using TESSA and PEP acronyms in their survey and report? They no longer exist and have been brought into the realm of ISA – at a push they could have referenced TOISA but TESSAs and PEPs have long since gone.

    Sloppy work, sloppy compiling and results that don’t appear to add anything of value to the overall picture.

    The FSA should be tasked by the Treasury to reduce its budget, not increase it, and a start would be to stop wasting money on surveys of this nature.

  27. What a complete and utter useless article about a subject so important.
    There are all different types of risk not just investment risk. And in my experience clients have to be educated about the different types of risk. You can’t just say are you prepared to accept risk with your investments, do you understand you can lose all of your money? You have to point out what the risks are, and then let the client make an informed choice.

  28. Of course most investors don’t want a risk to their capital. They’re not stupid; they want a guaranteed return of 10% or more with no risk at all to the original investment. Ask someone (anyone) if they want to lose money and 100% of the time they’ll reply no!
    The FSA are so out of the tree it’s starting to become embarrassing.

  29. Fund factsheets give performance data gross of charges and tax and if you take away the costs involved, term deposit rates are hard for investments to beat so I agree that most people are far better off without taking the additional risk.

  30. And nine out of 10 cats prefer Whiskers.

  31. Oh dear, I haven’t seen the survey but from the report it looks like a very poor piece of work. I bet if I asked 100 would they like to be in a traffic accident this morning they would answer ‘no’, but then accepting the need to take the risk to get to work, would get in their car. Shouldn’t the FSA be ‘educating’ the public? As a result of these survey will they 1) Make up more half wit policies and damage the savings and pensions culture yet further or 2) Decide they need to do more than check the font size on my paperwork and start a proper programme of education (and I don’t mean some obscure website nobody has heard of from another bonus laden quango)?

  32. Isn’t there an important difference between statistically validated risk and perceived risk. And wouldn’t the BBC + Cambridge University Big Risk Test be of more value – to IFAs and consumers than this FSA study? And what are IFAs to do differently as a result of the findings?

  33. Hardly a surprising finding from an organisation of state employees. It’s a bit like the Church asking for opinions on sin!

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