21st February 2011

Is property losing its appeal as a long-term investment?

The publication last month of the most recent Association of British Insurers (ABI) quarterly consumer survey contains some very revealing figures about how savers and investors are thinking regarding providing for their futures.

The figures suggest they are losing faith in property as findings from the survey showed that stocks and shares, savings accounts and national savings have increased in popularity as confidence in property has fallen.

In fact, although it is still the most popular asset class (34% of 2,500 surveyed), fewer people now see property as the best long-term investment than at any time since Q3 of 2007 when the ABI?A started their surveys. The popularity of property investment fell by almost a third in the last three months of 2010 compared to the previous quarter.

18% saw savings accounts with the banks and building societies as the best long-term investment. 14% preferred stocks and shares, up by 5% and at its highest level since the surveys began. 7% thought national saving products the best, 3% went for other investments and 24% said they did not know.

Perhaps the public are right in turning their back on property. ABI's analysis shows equities are the top-performing asset in 64% of 5-year periods between 1960 and 2006 and the return for equities is higher than returns on property for nearly all 20-year investment periods between 1960 and 2009.

Whether or not the numbers of people turning away from property investment continues to rise remains to be seen but if so, and if the current low rates of return from deposit accounts fail to significantly improve, there is a great opportunity to discuss the potential benefit of equity investment with our clients.

Whose financial advice would you trust?

The same publication also contains some very interesting data which should be useful to firms yet to plan their transition to fee charging.

The ABI asked consumers "whose financial advice would you trust the most?"  They had 2608 responses to the question, and 26% rated an IFA as the most trustworthy (the highest). 19% saying friends/family was next best. Only 9% said banks/building societies, putting them in 5th place.

With this good news for our industry in mind, why should it be then that despite apparently trusting IFAs above any other form of financial advice, 65% thought financial advice was not worth paying for and another a 25% said they thought it was worth less than £200?

The answer appears to be that the public continues to believe financial advisers are not sufficiently highly qualified. More than half of the 2608 that responded said they thought qualifications should be equivalent to accountants and solicitors.  Another 29% thought a degree level would be appropriate. In the opinion of 86% of respondents therefore, the level 4 benchmark required by RDR - equivalent to a first year of a degree - is too low. Perhaps we should actually be aiming for chartered status before shouting too loudly about being highly qualified!

One further piece of data that is of interest indicates that of 817 respondents who had received advice from a bank, building society, IFA or "other" in the previous 12 months, 69% thought the advice they had been given was free, which might also partly explain why so many said it isn't worth paying for. I imagine the FSA will be very alarmed to learn that such a large percentage appear to have misunderstood the nature of commission payments, is this an indication that some advisers may still be providing poor explanations to their clients at the point of sale?

David Massarella

Compliance Manager at Financial Relationships

Investments, Adviser Letter of the Week