Stunned by losses in the financial crisis, Americans will be investing significantly less in the future, according to a new survey by consulting firm
Forty-nine percent of the people surveyed said they have either stopped or reduced investing in stocks or mutual funds, 26% said they have no intention to return to these bedrock financial vehicles in the next three years, and another 27% said they were unsure whether they would return to the markets in that timeframe.
But the reactions were more muted among higher-income people and gender, with only 21% of those earning more than $75,000 a year saying they have stopped investing altogether in stocks or mutual funds. Thirty-two percent of women said they are unlikely to return to the market, compared to 21% of men. AlixPartners says financial companies should restructure their offerings and marketing plans to address this bifurcation in the market.
“Investors who had placed their trust in the investment industry are cross, cautious and confused,” said Clarence Hahn, co-leader of the financial services practice at AlixPartners. “And while the collective loss of wealth in the past year has had a deep impact psychologically as well as financially, the irony is that the lost wealth can only be rebuilt through participation in the markets. Financial advisory firms therefore have two key challenges: to figure out who really is going to start investing again, and to win back trust by building into their offerings a level of oversight, due diligence and risk management that will eradicate the possibility of similar meltdowns in the future.”
Pierre Buhler, the other co-leader of the financial services practice, added, “Investors have pulled out and don’t know if they want to come back, suggesting a market at a turning point. It remains to be seen which way these people will turn. Given the amount of money on the sidelines, there lies the opportunity. The role of the financial adviser is critical, and institutions that get this and develop the customer propositions to reverse the tide, will ultimately gain from the fundamental shift we’re seeing.”
AlixPartners also said that financial services firms appear to be mis-spending up to half of their marketing dollars, particularly since investors have had such a wide range of reactions to the crisis. “In this kind of market, it would behoove financial services companies of all kinds to figure out for sure what part of their marketing is waste and how to focus on finding and pleasing the true investors out there,” Hahn said. “Rifle shots, not scattershots, are what’s needed right now.”
AlixPartners conducted the “Americans’ Investing Outlook Post-Financial Meltdown” among 1,000 people in August.
