Why the sudden lack of confidence? Laura Varas, principal of Hearts & Wallets, says it has to do with an increasingly complex marketplace. An adverse market environment, economic uncertainty and even the rise of automated trading have conspired to make investors of all ages and lifestyles "feel less adequate," she said in a telephone interview.
Investors feel their skill set isn't as good as it used to be, relative to how competitive it is, she said.
The perception of being inexperienced, however, diminished with greater wealth, according to the study. Almost seven in 10 investors (66%) with less than $100,000 in investable assets described themselves as inexperienced. Compare that with the wealthiest investors, those with more than $500,000 in assets. Only 28% of the wealthiest considered themselves inexperienced.
Despite the higher perception of being inexperienced, investors weren't running to their advisors for help. In fact, a startling 55% said they feared that they were getting ripped off by their financial advisors.
"Investors don't know whom they can trust," Varas said, adding that the growing "trust gap" was contributing to the changing perceptions investors have about themselves. An understanding of what advisors do and how they earn their money would go a long way in helping investors develop higher trust, Varas said.
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Ironically, fee-based pricing, adopted to build trust with investors, has had the opposite effect, according to Varas. It's "muddied" investors' understanding of what advisors are doing on their behalf. Under the old-style commission arrangement, investors knew exactly what they were getting for their money - a stock or other investment product whose performance would help them evaluate the advisors' competence.
Investors also grew more uncomfortable taking risk, the study found. More than one in three (35%) said they were very uncomfortable taking risk, up from 28% in 2010.
"There's no appetite for risk-taking. They'd rather miss out on an opportunity than lose what they have," Varas said of today's investors.
The study, entitled "Investor Mindset in Mid-2012: Concerns, Attitudes and Beliefs," surveyed a nationally representative sample of more than 5,400 U.S. households.
