Research firm Compeer have reported that funds held by stockbrokers in “execution-only” accounts have increased by 20% in the first nine months of this year. And a survey they undertook of 1,000 investors showed that half of them would invest without taking financial advice (i.e. by using an IFA or taking advice from a stockbroker for example).
This growth in the DIY investor community might partly have been driven by the Retail distribution Review that took effect in January of this year where the costs of advice now have to be spelled out. But it is also surely the case that there is a growing awareness that high charges for advice and fund management erode the returns available to retail investors.
ShareSoc has long advocated that retail investors should take charge of their own investment portfolios. One reason for this is simply that professional fund managers do not demonstrate any expertise of significance so an “amateur” investor might perform just as well. If you are not convinced read the book “Monkey with a Pin” and there is lots of other evidence that most professional fund managers (with a very few exceptions) perform no better than chance. Even a few simple investment rules or stock screening systems can turn new investors into reasonably capable portfolio managers in no time at all.
Disintermediation is the name of the game, i.e. taking out the middlemen who contribute little but add greatly to the costs, and the internet makes this more viable than it was in the past. But in the UK, the proportion of “advised” investment business is still about 80% when it is only 60% in the USA (source Numis Securities in the FT). It is unfortunately true that the financial community and the regulators have developed a mystique in the UK that stock market investment is such a complex and arcane art that you would be foolish not to rely on professional advice. This is of course nonsense and can be very expensive for your own future wealth.
Roger Lawson
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