At The Platforum’s annual conference in October, the customer was referenced throughout – often with the admission that as an industry we still do not serve him or her as well as we should.
Consultant and orator Lucian Camp lamented the lack of human faces on financial websites; in fact, the only people that exist in these spaces appear to be women in headsets and men in black-rimmed glasses. In contrast, working on an Asian fund distribution report, I was surprised by how prominently faces were featured on sites. For example, try the homepage of Fund Online Korea for a wall of faces representing a range of demographics and fashion senses (that is, they are not all wearing suits).
We seem to shy away from this kind of marketing and pay lip service to putting customers at the fore of our thinking. We should be asking ourselves who these hitherto invisible customers are, how they make investment decisions and what they would like from us to help both the journey and outcome.
For one, we should be helping customers to make good choices, which is tricky given that the market is considerably oversupplied. According to behavioural finance advocates, engagement drops when investors face a list of more than 30 funds. The level of choice becomes daunting. This reaffirms the worth of Hargreaves Lansdown’s Wealth 150+ to users and throws into question the helpfulness of longer select lists on direct-to-consumer platforms such as the full Wealth 150 or Fidelity Personal Investing’s Select List of 130-plus funds.
Concern is seeping in over concentration and its negative consequences – the fallout from Bill Gross’s Pimco departure filled trade publications for a fortnight. But on the flip side, open architecture can be a barrier to investing. What is the optimal number of funds needed to keep the decision-making process manageable for customers while catering to all tastes and avoiding shoehorning? Is the answer as simple as stated by Old Mutual Wealth group customer director Carlton Hood: a managed solution from a trusted brand?
In addition to good guidance, we also need to offer reassurance. Fear is an emotion that can prevent investors from making good decisions. Even though capacity for loss should be key when deciding on a risk level for a portfolio, loss aversion means that people tend to be too cautious to reach their goals. Even the renowned economist Harry Markowitz, pioneer of modern portfolio theory, struggled with decisions about his personal portfolio. When dealing with his retirement assets he dismissed the wisdom of the efficient frontier and instead split his contributions 50:50 between equities and bonds – to be safe.
Your customers may simply lack interest in investing and require it to be made as painless as possible for them. There are very few hobbyists out there, as consumer research tells us time and again. By our most recent calculations, just 6 per cent of the British adult population have investments and enjoy investing.
When potential rewards can only be reaped in the distant future, people are even less inclined to act: in the US, the average person only checks their pension portfolio once every 10 years. This is something to bear in mind when getting excited about auto-enrolment and the new pension freedoms. Last year, Nest, the retirement savings trust, revealed that 99 per cent of its members sat in its default fund.
These customers are not going to become mini-Warren Buffets, no matter how much we educate on asset allocation, alpha, etc. They just want their money to work for them so that they can fund their kids’ university education and retire comfortably. At our conference, Richard Buxton pointed out that for many the Holy Grail is inflation plus 3 or 4 per cent – how we get to that is far less interesting to them. By and large, the customer cares about outcomes.
Recent findings from financial research outfit Consensus confirm this point. The most important thing for investors (from a shortlist of possible factors) is that their returns exceed the best interest rate they could secure on the high street. Short-term wins and making lots of money are, funnily enough, not top priorities.
Most customers want investing to be quick and simple, with some choice but not too much, and be given peace of mind during the process. None of these truths reflect revolutionary thinking, and yet we often lose sight of them in designing and marketing solutions.
Homer Simpson may in fact be a more accurate portrayal of your average customer than the man in in the suit and black-rimmed specs. Now there’s a thought…