Consumers have lost trust in financial services

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Financial services sector ‘has lost the trust of the Joe Bloggs consumer’, says KiwiSaver boss as FSC releases investor research

Wednesday, August 10th 2022, 8:10AM 4 Comments

by Jenni McManus

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

Among the FSC’s key findings:

• four out of five respondents have investments and most (88%) go online to manage their finances;
• a growing number (18.6%) have used micro-investing platforms like Sharesies and Hatch and another 15% are planning to do so;
• most (68%) are making risk-based decisions to safeguard their wealth while only 33% are choosing higher risk/higher return investments. Investors are more wary than in 2021;
• uptake in ESG investing is low, with 85% of respondents saying they are unaware or unsure if they hold such investments, while 21% are concerned about the risk of greenwashing;
• cryptocurrency is down, with 14% fewer Kiwis investing than at the same time last year; and
• privacy and security concerns are much lower than in 2021.

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

“A fifth of Kiwis that do not have KiwiSaver say it is because they have no confidence in the scheme or that they are confuse and compared with 2021 fewer respondents stated that they understand the relationship between risk and return,” Klipin says.

“It is also worrying that concern about privacy and security of personal information is trending down, despite 88% of us using online digital tools to manage our finances.”

Ryan Bessemer, the CEO of Trustees Executors which sponsored the research, says trust is a major issue for the industry “and our main duty is making sure we’re creating a trusted environment and breaking down the jargon”.

Bessemer says it’s worrying that 20% of the available investor population is choosing not to engage. In part, he puts it down to “continued confusion about products” and partly to “traditional thinking about investing in property rather than in markets and funds”.

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

Citing research his firm has done ahead of a national roadshow, Kernel Wealth’s CEO, Dean Anderson, said most Kiwis appeared unable to identify their KiwiSaver provider, let alone know whether they were in the right type of fund.

“That’s a significant step beyond knowing who the provider is and where 3% of your paycheck is going every fortnight,” Anderson said.

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

“We’ve probably articulated poorly as an industry around ‘conservative’ as being something to use in a one- to-two-year timeframe,” he said. “People have been caught by surprise so far this year, with conservative funds going backwards. I think we need to be better at that all-round service offering and how we’re going to articulate these things.”

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

“Fintechs have now taken the lead in terms of consumer trust versus traditional financial services. So, there is a lot to be done there around reconnecting with consumers and helping them make better decisions.

“That flows through to what we see with wider asset classes – that flow-through to what we were seeing in behaviour around crypto and why younger groups and minorities are looking to cryptocurrency.”

Anderson said minorities and fringe groups were attracted to crypto and other more speculative or newer asset classes because they didn’t feel part of the traditional financial services system, they didn’t understand it and “they’re looking to these as a golden ticket that they can use as a way out”.

Even worse, he said, these groups don’t usually have high levels of disposable assets but tend to invest 100% of what they’ve got. The financial services sector needed to shift that mindset away from returns – and even from risk – and focus instead on more useful behaviours.

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

“[But] that’s competing against instant gratification of short-term speculative returns. We’ve been hardwired now from social media to be drawn to instant gratification so there’s a real tension there as well.

“We need to get away from a short-term focus to long-term behavioural outcomes.”

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

It was also heartening that there had been no panic selling over the past few months. “The markets are down, it is resetting expectations so hopefully we won’t have what we’ve had in the past where a generation of investors flees the markets and does not return,” Anderson said.

Among the 2000 people who took part in the FSC’s survey, KiwiSaver was the most popular investment (78%), followed by cash (excluding term deposits) at 54%, New Zealand shares (30%), managed funds (17%), direct property (13%), ETFs (8.2%) and crypto (6.2%). This is broadly in line with the FMA’s findings last week.

Of those without KiwiSaver, 29.8% said they hadn’t been employed since KiwiSaver was launched in 2007, 23.1% said they’d prefer to invest their own money, 21.3% said they preferred to have their own money, 18.6% said they didn’t feel the need, 13.5% said they had no confidence in the scheme and 9.2% said the system was too confusing.

Only 53.5% of respondents said they had a good or very good grasp of the relationship between risk and return, compared with 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 another 4.5% say they are intending to use them.

Tags: FSC

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