The financial advice and wealth management market can be a difficult industry to navigate for retail investors – especially those with low financial education.
But are regulators doing enough to help retail investors?
Recent research by the Cyprus Securities and Exchange Commission found that more than a third (37%) of investors in the UK and Europe turn to social media or friends and family for investment recommendations.
It also revealed that less than half (42%) of investors investigate the investments they are being recommended and 30% check regulators’ websites to undertake their due diligence.
International Adviser spoke with number of firms for their views on how regulators could address poor investor interaction and how they could become more user-friendly.
Lack of expertise
John Westwood, group chairman at Blacktower, said: “Regulators should place focus on transparent, clear communication with investors, just as advisers should. Information regarding intelligent investing needs to be readily available in a range of formats and locations so that any investor, whatever age, can access it and be equipped to make informed decisions with confidence when it comes to protecting their finances.
“The assumption that the general population will understand the technical jargon of the finance industry is a dangerous one and could result in a significant percentage abandoning their attempts to educate themselves on regulations and requirements.
“There needs to be a particular emphasis on not taking personal recommendations from friends or family at face value without additional investigation, although we want to believe those in our immediate circle know best, the truth is that the vast majority of people do not have the expertise or knowledge to tell a good advisory firm from a bad one.”
Westwood believes there could be room for improvement of regulator websites too.
He added: “Good user experience on digital interfaces is essential in aiding clients in their search for helpful information. It completely defeats the point of educational campaigns if regulatory bodies successfully direct consumers to the right place but then fail to provide them with a website that is easy to navigate and understand.
“It is important to consider diversity within the consumer population and ensure that those with visual impairment or lack of technical knowledge are also catered to.”
‘Jargon is a major problem’
David Cook, partner at Penta Group, also highlighted jargon as one of the main challenges to clear regulatory communications.
“One of the Financial Conduct Authority (FCA)’s key roles is to regulate the advertising of financial services,” Cook said. “The FCA requires that financial promotions must be clear, fair and not misleading. It is a challenge to make something clear if there is a low level of financial literacy among the general population, who are, of course, the targets of such promotions.
“Jargon is a major problem when an investor is trying to understand financial services, the risks and options available to them. When he was chairman of the FCA, Lord Turner often talked about the ‘alphabet soup’ of financial services.
“Regulators also live and breathe acronyms and can forget that these things mean nothing to most people. People may find it hard to understand what such things mean for them or to be able to ask the right questions about apparently complicated jargon, something that can easily lead to people making poor choices.
“Regulators do have a role to play, as do businesses, who should ensure their websites are clear and informative. Such websites can also help people better understand financial services and the options available to them. However, the problem of financial literacy is deep rooted in society and needs a concerted effort from many parties including government and businesses. Regulators should be part of the solution, but it would be unfair and impractical to suggest this is something they should address alone.
“More generally, initiatives like Consumer Duty should ensure that the FCA remains focused on working to promote good outcomes for retail investors, which should help raise retail investor participation in financial markets and create a better environment for retail investors, although there have been some questions from industry and even from some politicians on whether the FCA’s approach will be proportionate and effective.”
Effective use of marketing channels
Dean Kemble, chief commercial officer at GSB, took a similar view.
“To improve communication, regulators can simplify language using plain English and avoid using technical jargon,” Kemble added. “They can also provide educational resources to help investors better understand the financial markets and the regulations that govern them. This can include webinars, online courses and educational materials such as brochures and videos.”
Kemble also suggested education should start at school: “Working with schools and education facilities to integrate financial education into the curriculum can help students learn about investing and financial markets at an early age.”
Effective use of marketing channels is key too, as he says: “Engagement with investors through social media, email newsletters and other communication channels to keep them informed about regulatory changes and other important information can also support these goals.
“Regulators can also improve the usability of their websites by making them more user-friendly and easy to navigate. This can include providing clear and concise information, using simple language and providing easy-to-use tools and resources, such as calculators and checklists.”
‘We expect too much’
While David Owen, wealth proposition director at The Openwork Partnership, acknowledged a need for more clarity from regulators, he also pondered whether they may already have enough to do.
“Without doubt, we expect too much from our regulator,” Owen said. “However, admittedly, there are times when they could be more specific on their definitions around regulations for our profession − the public has a plethora of professional bodies, advice firms and now even ‘TikTokers’, who either have the ability to, or who deliver financial education.
“Rather than the regulators delivering education, Owen proposes that advisers take the reins: “We have a duty to close the advice gap by deploying our knowledge in our communities to provide our distilled years of financial wisdom − arguably on a pro bono basis.”