Banks Are Just A Bit Less Boring...

Banks are just a bit less boring now than when I started work in the 90’s. We can bank on our mobile, research investments online – the adverts even sometimes vaguely match our real lives.

Many things remain the same though like the way economists love to claim certainty in their theory when markets become volatile. None of us likes to admit we don’t know – particularly not on television.

The recent China stock market crisis has caused many people to look for reassurance in the economy and their investments but it is not all bad news.

Here’s some things we do know:

The recent crash is nowhere near as severe as 1987 or 2008, the Chinese economy is not a bad as it looks and, importantly, the stock market isn’t always the best indicator of the health of the global economy

China accounts for a quarter of the world’s economic growth, its hugely important but the Chinese economy is really changing rather than just ‘failing’. After years of big global partnerships with the world clambering to join the Chinese party the focus is slowly shifting. Policy makers and business leaders in China are turning to things at home. The domestic economy actually looks quite healthy inside China. Retail sales are growing at 10% a year and indicators like mobile phone contracts and airline ticket sales are all increasing. Stock market volatility is likely to continue for some time but it shouldn’t cause people to panic.

The stock market has always been a pretty straightforward idea but unfortunately it generates so much data and opinion it often seems very complex. It is split into different indices – the most famous in the UK being the FTSE 100, comprising the largest 100 companies. Investing in the stock market is usually done through some-kind of third-party broker or adviser but increasingly online platforms like Interactive Investor and Hargreaves Lansdown are being used by people looking for share dealing services without the added expense of advice.

Research now suggests that women may be better placed to deal with volatile markets than male investors. Most studies show that men and women perform about the same when it comes to final financial returns but women score significantly better when it comes to risk management. Men appear to be much more prone to harming investment performance by ignoring advice. Male investors are almost six times more likely to display erratic behaviour and trade too frequently. Women are also typically better savers. Research from Fidelity Investments showed that while men save 7.9% of their salaries, women save 8.3%. A small difference that adds up to a lot of money over a lifetime. I can feel my wife and daughter nodding in agreement as I type.

The evidence is that men invest more than women but when women invest they do it better. Sorry chaps.

Part of the problem here is that the finance industry is still rather stuck in its ways. Financial Advisers, Banks and Wealth Managers have made some efforts to modernise but often new technology has just been added to an old fashioned attitude producing a more efficient version of the same old story. The industry still has a long way to go.  New regulations now mean independent financial advisers need to explain how they earn your money more clearly than ever before. The focus now is on earning a fee from the client rather than earning commission behind the scenes.

Change is happening but an industry built on decades of earning money ‘behind the scenes’ isn’t going to easily adjust to transparency.  I have worked with big investment houses, wealth management firms and even directly with the industry regulator themselves. I have seen excellent advice and bad advice; delighted clients and confused ones. My advice about advice is to test your adviser. Ask them to explain how they earn your fee and the relationships they have behind the scenes with investment platforms & other businesses. If you are met with a grimace and the sense that it’s ‘all too complicated to explain’ then seriously think about going to someone else.

Investment products can be complicated but explaining to your client how you’ve earned your pay today should not be. So ask yours this month and apply the grimace test.