Consumers more likely to turn to social media and ‘finfluencers’ when making financial decisions than information from financial service firms about how their investment is performing, as fund performance reports leave readers “feeling overwhelmed and confused”
The Government’s ambitions to build an ‘investing culture’ are “in danger of faltering at the final hurdle”, if financial services do not amend fund performance reports to make them “more accessible and useful to potential and current investors.”
Today, The Investing and Saving Alliance (TISA) has released new research highlighting that the performance information relating to investments, known in the sector as Performance Disclosures, is simply not being considered by 8 out of 10 investors. The research was conducted in conjunction with Vanguard, Life Moments and EY Seren.
Just 1 in 5 use this information to inform their investment decisions. This falls to just 1 in 10 amongst less confident investors.
Instead, when making investment decisions, investors were more likely to turn to family and friends (47%), information sites such as MoneySavingExpert (46%), TV programmes about money (19%) and social media or influencers (14%) than Performance Disclosures (12%).
The research comes after the City Minister, Emma Reynolds MP, told the House of Lords Financial Services Regulation Committee that there has been a failure to create an investment culture in the UK.
Commenting on the research, Carol Knight, Chief Executive at TISA said:
“The findings of this research are stark. The very detailed, quarterly performance information, provided at great cost by the financial services companies, is simply not being used. It’s not helping the vast majority of consumers. Addressing this is vital if we are to build the investment culture the Government says it wants and the economy urgently needs.
As more people look towards investing, we are in danger of faltering at the final hurdle if we do not ensure investors feel confident and informed. If we are to foster an investment culture in the UK, changes need to be made to allow financial services firms to provide information, such as a cash benchmark, which will help individuals determine whether their money is better invested or kept in cash.”
Regulation requires financial service firms to create and provide quarterly fund performance reports. These reports are supposed to help people understand how their investments are performing, assist investment decisions and allow investors to track progress toward financial goals.
The research also found:
- Women were more likely than men to report challenges when reviewing performance disclosures, with nearly 85% facing challenges compared to 75% of men.
- Investors from an ethnic minority background were more likely to face challenges when reviewing performance disclosures, with 94% stating they faced some sort of challenge.
- Women (7%) were far less likely than men (18%) to turn to Performance Disclosures when making investment decisions. Instead, over half of women refer to family and friends about investment decisions.
- When reviewing a Performance Disclosure:
- 1 in 4 less confident investors struggled to understand key financial terms.
- 1 in 3 less confident investors struggled to understand performance metrics.
- 1 in 4 less confident investors struggled to understand relative performance.
The research looked at how the design of Performance Disclosures could be improved for all investors and found that simple educational content and benchmarking features support financial decision-making by making it easier for investors of all confidence levels to understand how their investments are performing. Additionally, innovation in AI by financial services firms could increase consumer engagement and understanding of how their investments are performing.
Carol Knight, TISA Chief Executive, also commented:
“Performance information should empower investors with the clarity and confidence to make decisions on their savings and investments. However, in their current form, they are often packed with jargon making it difficult for even confident investors to extract key insights. This can leave readers feeling overwhelmed and confused.
To ensure investors can understand how their investments are performing and what actions they may need to take, we need to rethink what information is included and how it is presented to make these reports accessible for investors of all backgrounds. This research provides firms with an understanding of the challenges investors are facing and the changes that can address this.
We look forward to continuing to work with financial services firms and the FCA to ensure performance disclosures empower UK consumers.”