Talking savers out of the ostrich mentality
British people aren’t saving anywhere near enough, whether it’s for retirement or inevitable rainy days. How can we pull our heads out of the sand?
There are many factors contributing to slender savings and retirement accounts, but perhaps one of the easiest for financial professionals to overcome is sheer confusion on the part of their customers.
To get an idea of how the industry can move towards customer-focused practices which encourage appropriate saving, we spoke to professionals working in the financial field or associated areas, as well as seeing what industry leaders are up to.
What are the biggest problems with communication?
If communication isn’t at the right level, it makes it that much harder for investors to make the right decisions, or even to make any decisions at all.
“Most financial needs are pretty basic, but by the time product particulars have been through various departments and overlaid with a generous dollop of compliance-related legalese, is it any wonder that prospective clients stick their heads back in the sand again?” says Tony Harris, MD and founder of ContractorFinancials.
Another issue is mathematical proficiency. 17 million Britons have the maths skills of a primary school child, and many more lack confidence in their own ability to understand financial information.
“A lot of people are worried about their mathematical ability and would rather search for an easy, one size fits all solution that may not be appropriate, particularly when it comes to their pension needs,” says Lisa Conway Hughes from Westminster Wealth Management.
What consequences does this have?
One of the most obvious consequences is that investors choose the wrong product, a mistake which is often only discovered years down the line, usually when it’s too late to rectify it.
“The consequences are huge. The difference between a well performing fund and a poorly performing fund can make the difference of hundreds of thousands of pounds in a pension pot,” says Conway Hughes. “Also, inertia leads a lot of people to do nothing, which also has consequences.”
It’s not just about fund performance either. Michele Boland, of Neglect Assist, says that sometimes inexperienced investors fail to understand the amount of risk which they are taking on and as result “may be accepting a higher level of risk than they actually desire or have the capacity to bear.”
What can financial professionals do?
Communication isn’t a one-way process. “Advisors need to listen carefully to their customers and provide products and funds which suit their customers,” says Boland.
“Advisers can help by taking the time to explain, in plain English, what the client needs to do and how in order to address their situation,” says Conway Hughes.
However, these two common sense dictums don’t address the digital revolution that’s taken place in the way most people now source information, from holiday flights to pension provision. It is no longer just about how the information is worded, it’s the medium through which it is accessed.
“The art of communication has changed significantly for IFAs (Independent Financial Advisors) in recent years,” he says. “IFAs must look to get more involved in social media and blogging as a means of reaching their clients, offering advice in a format that suits the changing way that we all consume information.
"Lengthy face-to-face meetings are no longer an option in this fast moving world. Instead clients are demanding information on the move, and data that is accessible from anywhere.”
He predicts a future in which Skype, smartphone apps and social media are the dominant channels for communicating with perpetually digitally-connected clients.
When you look at the way that big financial organisations are providing information, we can see that this day is much closer than we might have thought. Asset management company Fidelity uses online interactive tools such as its People Like Me tool to clearly demonstrate to potential investors what similar people are doing with their money.
For an inexperienced investor, perhaps being able to see the most popular investment vehicles and funds gives a much better broad brush illustration than a densely worded leaflet full of financial jargon.
The government-backed Money Advice Service also offers a wide variety of simple financial planning tools, including action plans to help people take control of pensions and pre-retirement checklists. Their resources offer an excellent guideline for advisors looking to explain financial essentials to inexperienced investors in easy to understand English.
The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the official policy or position of The Information Daily, its parent company or any associated businesses.
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