Survey finds investors don’t understand or prioritise costs

The survey, conducted by State Street, found that comprehension of investment fees is low even when working with an adviser, with 47 per cent (nearly half of those who took the survey) believing that the management costs of investments such as ETFs are already included in the fee.

The US financial services company suggests there is a lack of understanding about what diversification means; 85 per cent agreed that “a well-diversified portfolio is one with a variety of investments that reduce stock market risk,” while 55 per cent incorrectly said, “a well-diversified portfolio is having investments in a variety of accounts at different firms or investment platforms.

Meanwhile, when asked to rank the importance of other factors when evaluating investments, majority of investors selected “risk compared to return” (53 per cent), “quality of stocks in the fund” (51 per cent), “performance compared to peers” (46 per cent) and “performance compared to the benchmark(s)” (42 percent).

The least popular selections made in the survey included “track record of the fund manager” (28 per cent), “market sectors covered in the fund” (22 per cent) and “tax efficiency” (22 per cent).

“Comprehension of investment product fees – and fees in general – is low even among those working with an advisor. This underscores how much work our industry has to do when it comes to price transparency and investor education,” head of practice management at State Street Global Advisors, Brie Williams, said.

“There’s a clear opportunity for advisors to talk to clients about what they own, why they own it, and how much it costs.”

Neil Griffiths

Neil is the Deputy Editor of the wealth titles, including ifa and InvestorDaily.

Neil is also the host of the ifa show podcast.