Getting investment advice from the pages of the Sunday Times? The chairman would like to have a word with you
"May I ask your professional opinion on something?" asked the chairman of the insignificantly-sized investment company SmallBlue Planet as we enjoyed a pint or two of Thermonuclear Sunburn at The Absent Scribe. "Are you sure that's wise?" I replied. "Probably not," conceded the chairman. "But I'm willing to take the risk - especially as it relates to something we touched on last week."
"Guinea-pigs in little rodent straitjackets?" I said hopefully. "Not exactly," replied the chairman. "But you know how we were talking about how the FSA wants to allow retail investors wider access to alternative investments - or, as you slurred it at the time 'alternative investors'?" "Everybody makes mistakes," I said stone-facedly. "What's your point?"
"Well," welled the chairman. "All week it's been bothering me - can retail punters really have grown more switched-on over the last five years or so? Or at least to an extent where they should be let anywhere near a hedge fund?" "It's an interesting question," I said. "And it rather depends on whom you ask.
"For example, were you to go by recent research from Friends Provident, you would not be overly optimistic. The company has suggested a lack of awareness among consumers about the benefits of Isas has been denting demand because two-fifths of those surveyed didn't know what 'Isa' stood for while one in six did not know why it was worth investing in one.
"For the record, the research also revealed fewer than one in five would consult a professional financial adviser when making a financial decision. This compares to about a third who would consult their spouse or parents, a fifth who would trust their own judgement and - perhaps most worryingly - 16% who would use media coverage to guide them."
"The poor benighted souls," sighed the chairman. "Tell me about it," I said. "Still, before we get too depressed wondering how many of those 16% have worked out the front pages of the consumer financial press should only ever be used as contra-indicators, there is some other research of a similar vintage - this time from the good, good people at Barclays Stockbrokers.
"Here we learn today's investors - or at least those 'in the know' - were taking control of their own investment decisions in the Isa season, with two-thirds either already holding a self-select Isa or considering taking one out before the end of the tax year.
"It seems nearly two-fifths of investors are attracted to this type of investment because it allows them to make their own investment decisions, a further third want to control and actively trade their own investments while a tenth like the idea of having the choice to buy and sell according to what's happening in the markets."
"Don't those all rather amount to the same reason?" asked the chairman. "Furthermore, might one take a wild guess that Barclays Stockbrokers offers its very own self-select Isa?" "One might indeed," I replied. "Although in a surprising lack of solidarity with its brothers and sisters at I-Shares, the company's spokesperson omitted to point out ETFs might be included among a lengthy list of potential investments.
"Anyway, the survey went on to unearth that, of the respondents who had invested in stocks and shares Isas over the last 12 months, seven out of 10 had invested directly. And we have reasons this time for not consulting an adviser, with two-fifths saying they wanted to do their own research and a quarter that they preferred to make their own decisions.
"And yes, before you say anything, those sound like pretty much the same reason to me too. Meanwhile, one in 10 of those direct investors felt they were so experienced they did not need the services of an intermediary." "Crikey," said the chairman. "Why does all that make me really, really uneasy?" "There is a faint feeling of déjà vu about it all, isn't there?" I agreed.
"Just out of interest, have you got any statistics on whether those direct investors have been faring any better or worse than those with advisers?" asked the chairman. "Or indeed those who read the Sunday Times?" "I'm afraid not," I said. "And even if I did, would you really want to hear them?"