Mistrust holding back investors: Survey

PHOTO: Mistrust holding back investors: Survey

SINGAPORE - Cash is king.

This mantra is more deep-seated today than ever in the psyche of retail investors, whose trust in the capital markets has been tested and bruised in recent years.

It is hardly surprising then that a recent study on the attitudes of investors has highlighted their growing inclination to "keep cash under the mattress".

The global investor survey by the State Street Centre for Applied Research discovered that 40 per cent of retail investors polled are keen to invest more aggressively over the next 10 years, if they are to be prepared for retirement.

A more aggressive investment stance would generally involve equities and other investments.

Yet, cash is their preferred allocation - 31 per cent of their asset allocation is in cash - and is likely to remain so over the next decade.

This disconnect between the stated goals and behaviour is cracking their retirement nest eggs, warned Ms Suzanne Duncan, the centre's global research head. "Retail investors are acting in some unhealthy ways as their action is not in accordance with their goals," she said at a recent briefing here.

Such behaviour is even more pronounced among retail investors in the Asia-Pacific region, where 49 per cent believe they need to be more aggressive, yet 32 per cent of their allocation remains in cash.

Mistrust across the whole investment system is one of several factors driving this behaviour.

Only one-third of global investors believe their investment provider is acting in investors' best interests, versus the firm's best interest. In the Asia-Pacific region, about 40 per cent share that view.

"There's a lack of trust in providers such as advisers or asset managers, as well as in equity markets and the government, as in regulators and politicians," Ms Duncan elaborated.

Loyalty is also an issue.

Nearly 70 per cent of investors in the region are not loyal to their investment providers.

The No. 1 barrier to retail investors getting more involved in their finances is scepticism of markets.

"Investors feel that equity markets are not working for them but against them," Ms Duncan said.

Fraud issues such as the Madoff investment scandal, the 2010 flash crash in the United States - which left investors wary of high-frequency trading - and market complexities like dark pools have heightened the mistrust.

Trading glitches during Facebook's initial public offering in the US this year and the near collapse of broker Knight Capital owing to a software error have further exacerbated the situation.

The other key barrier, particularly for investors in the region, is their lack of knowledge. Investors reported that they do not receive sufficient financial education from their advisers.

That means a lot needs to be done in terms of financial education and enhancing financial literacy, Ms Duncan pointed out.

Investors in the region have very little faith in regulators and politicians, with 68 per cent believing that financial reforms will be ineffective and a majority expecting the costs to be passed on to them.

"Investors feel regulation won't help address the current problems but in fact, would make them worse. They feel regulators are going to create another financial problem as a result of their actions," she added.

The study, titled Influential Investor: How Investor Behaviour Is Redefining Performance, is based on 12 months of research and input from more than 3,000 participants in the investment management industry from 68 countries.

The retail investor segment involved respondents from 14 countries, including Singapore.