Engagement of Investment Advisers

Last week SFC published a survey report on engagement of investment advisers (IA) of banks, SFC licensed firms and insurance agents/brokers, which was based on interviews with 100 investors (half of them with tertiary education). Some of those findings are remarkable.

• When choosing an IA, most investors looked at: product/market knowledge (74%); willingness to understand client's circumstances and address client's concerns (68%); and ability to explain matters clearly (62%).
• Almost half of investors have no clear investment objectives before discussing with IA, but some (32%) set their goals based on results of "financial health analysis".
• 44% of investors did not receive a written financial plan from IA.
• Among those investors who received a written financial plan, more than half just flipped through it or did not read it at all.
• Only 7% of investors indicated that their IA disclosed the commission/rebate arising from selling an investment product.
• Only 34% of investors claimed that they read the investment documents carefully before signing.
• Besides stocks & funds, investment-linked assurance schemes (30%) became the third popular investment products.
• 60% of investors thought that risk warning statements in the offering documents and product advertisements were not sufficient to alert them.
• In evaluating IA's services, the less satisfactory areas were: fees & commissions and financial planning skills.
• For service improvement, 57% of investors hoped to see more suitable product recommendations.

My remarks:

• As HK investors are generally short-sighted, IA are hardly motivated to enhance their financial planning skills.
• Besides product knowledge, soft skills (including listening & communication skills) are very important for financial planning. But many IA are lacking soft skills.
• Most people do not set goals. That's why goal setting is a key job of financial planning.
• Laziness is one of the 7 deadly sins of investing. HK investors are too lazy to review the documents. They could blindly rely on IA.
• As emphasized in Barber Asia's case, making risk warnings simply by documentation does not work. Effective communication is essential.
• What are "suitable" product recommendations? SFC would say suitability is based on investment objectives and personal circumstances. But investors may equate "suitable" with "making profits" (no matter the risk level).