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.”
Clients generally make 1 decision per year – to continue to outsource all of this stuff to me. They don’t care.
I don’t care what oil my mechanic uses, so long as the car runs well.
I don’t care what’s in my beer so long as it’s cold and tasty.
I don’t care what’s in a battery, so long as it powers the thing I stick it in.
PEOPLE DONT BUY DRILLS, THEY BUY HOLES.
When will the industry and Government’s and regulators wake up to this fact?
If we went though fees in any more details, it would take up the entire review meeting and clients STILL would have forgotten it 2 months later, because they don’t care, so they don’t retain it, because they don’t need that information, because they have and trust me implicitly.
In what other industries do we quiz consumers to see what level of comprehension they have about the behind the scenes details?
Sick of hearing about clients don’t understand fees….
Here’s a question to ask consumers… On a scale of 1-10, how much do you care about the exact details of the MER/ICR’s on your investments or the precise nature of how diversified you are? And measure that answer with those who have advisers and how often they hear from their advisers.
Unadvised, or poorly advised clients may score higher, my clients would score a 1 out of 10, they don’t care, that’s what they pay me for, so they don’t have to care, so I can care for them.
Most clients are interested in end result – fees in general are only a focus for industry insiders.
Strange survey. How many respondents understood the questions and their implications?