Over confident investors and the help they want: an overview of engagement

Schroders Global Investor Study 2016 illustrates that investors around the globe have a firm belief in their own investing capabilities.

The study also paints a picture of robust demand for financial advice around the world, where investors still want their investment decisions ratified by professional advisers.

Overestimating investment understanding

Consumers continue to display a degree of self belief in their own investment capabilities.

This has long been a well-understood behavioural trait in investing and in other areas of life where, for example, separate studies have linked the overconfidence of road users with increased traffic accidents.

Our research shows the extent to which investors overestimate their abilities, and we highlight the significant ramifications this may have for wealth in retirement.

Consumers are increasingly entrusted with their own retirement provision and, our study suggests, there remains a significant gap between what they think they know and what they actually know.

Schroders Global Investor Study 2016 found:

  • Only 13% of investors globally would admit to having a less than average understanding of investments.
  • Over half (51%) of the investors polled globally by Schroders described themselves as having more understanding than the average investor – suggesting over confidence.
  • 18% of women admit to having a less than average understanding of investments, compared with 11% of men.
  • Yet 63% of investors globally did not correctly identify what an investment management company does.

These findings, on their own, are a concern but the study also found that investors had unrealistic income expectations, which can lead to significant financial shortfalls in later life.

A cry for help

Belying that confidence in their investment abilities is the need for investors to ratify their investment decisions before making an investment with a financial professional.

Despite improving technology and the rise of “robo-advisers” - digital tools that ask individual risk and goals questions before investments are made online - it appears that investors still want the human touch.

  • Half (50%) of global investors say they plan to consult a financial adviser the next time they make an investment decision.
  • Millennials (51%) are more likely to consult a financial adviser than those aged 36 and over (49%).
  • Women (54%) are more likely to consult a financial adviser ahead of making an investment than men (47%)

It means that there is still an opportunity for the investment management industry to engage with a generation that is reportedly disillusioned with big business.

Willing to learn

Reassuringly, investors displayed a healthy desire to improve their understanding of investments. Schroders Global Investor Study 2016 found:

  • 89% of investors globally said that they wanted to learn more about investments
  • 94% of millennials said that they wanted to improve their understanding of investments in any way
  • 91% of women wanted to improve their investment understanding in any way, compared with 88% of men

Investors would most likely prefer to speak to a financial adviser more to improve their understanding of investments. That said, the DIY approach is also gaining in popularity.

  • 43% of investors say they would like to speak to a financial adviser to improve their understanding of investments
  • 42% of investors would spend more time doing their own research via independent financial websites
  • 36% would take part in online guides and tutorials

Any increase in DIY investing is of course to be welcomed – provided consumers are building their knowledge and engaging with their finances.

Our study suggests, however, that some aspects of consumer knowledge remain relatively poor.

It is, for example, difficult to feel confident that people know and understand their investments if relatively few can identify of the role of an investment manager versus an adviser, insurance company or investment bank.

There remain a number of generations, considerably closer to retirement, with a relatively poor grasp of investment and what it can and cannot do for them.

For a lot of people, being left to manage their retirement provision by themselves could well see them living unhappily ever after.

You can test your understanding of investments with our income IQ tool, which will reveal your behavioural biases and provide useful tips to empower you to make better investment decisions.

For the full story on the Global Investor Study and interactive infographic visit www.schroders.com/gis or download the full report below.

Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change.  To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.