Who do you trust when investing your money?
Making an investment is a big decision and understandably many people want advice and information before they take the plunge. But while some put their faith in a financial adviser, others prefer to talk it through with a friend. We take a look at who people in Hong Kong turn to when deciding where to put their money and how reliable these sources are.
Keeping it in the family
A study by the Investor Education Centre found the single most influential source of information people use when making a financial decision is family and friends. A massive 77% of people said they would consult a friend or relative about what to do with their money. The next most influential source of guidance was newspaper articles, upon which 38% of people who took part in the survey relied.
Meanwhile, 23% rated the internet as being their best source of information and 10% relied on tips they came across on social media.
But only a third of those questioned said information given to them by sales staff at a financial services firm would be most influential when it came to making a decision.
Figuring out who to trust
While it is easy to understand that consumers may trust their family and friends to have their best interests at heart, it does not mean this group is always in the best position to advise them.
The Investor Education Centre study found that in 55% of cases the family and friends people consulted did not work in the financial services industry, suggesting they may lack the necessary knowledge or experience to offer sound advice.
Investments can be complex and financial services material is often littered with warnings. These well-meaning family members may not be in the best position to understand the level of risk involved in a particular investment or how it fits with the risk appetite and financial goals of the person making it.
Equally, while reading the newspaper or investment blogs online may seem like a great way to educate yourself about trends in a particular sector, these outlets are not regulated, and there is no guarantee the information they contain is accurate. They are also often based on the personal opinions of the people who wrote them.
By contrast, financial advice professionals undergo rigorous training and are regulated by government bodies, such as the Insurance Authority and the Hong Kong Monetary Authority. They are also bound by a strict set of rules under which they must explain clearly to a customer a product’s features and risks. They are also required to carry out a financial needs and risk profile assessment to ensure their recommendations are suitable.
Other factors that build trust
When making a final decision about where to put their money, people in Hong Kong are most likely to be swayed by the return they expect to earn, followed by the risk of an investment, and the fees and charges they will have to pay, according to research by the Investor Education Centre.
But the fourth most important factor, cited by nearly a third of people, was the issuer’s reputation. This finding suggests investors understand the importance of choosing an established, well-capitalised company in which to invest. Investors should also check that a company is regulated by the relevant body in Hong Kong, as this gives them extra protection.
DIY versus professional advice
People in Hong Kong are confident about managing their finances with 64% believing they have above average knowledge when it comes to money management. Perhaps it is because of this confidence that only 44% say they would seek advice from a qualified professional before they made an investment.
But we use professionals all the time in other areas of our lives, such as doctors when we are sick and lawyers when we need legal advice. Why should our finances be any different?
There are many benefits to seeking financial advice from a qualified professional. Not only can they help you select individual investments, but they can also advise you on long-term financial planning and how to go about meeting your goals.
A trained adviser will also be able to help you diversify your portfolio, which is important as it can help you to manage risk, while they will also have an in-depth knowledge of the industry and the different investment products that are available.
As investment guru Warren Buffett said: “Risk comes from not knowing what you are doing.” By contrast, success comes from doing your homework and being prepared. You don’t need to rush off to do a crash course in financial planning, but seeking guidance from someone who has done all the training could really pay off.