Regulatory initiatives such as the Future of Financial Advice reforms may initially be counterproductive as they scare off the retail investors they are designed to protect.

A global investor study by the State Street Centre for Applied Research (CAR) has found that a significant number of Australian investors believe they will be forced to bear extra costs arising from the changes.

However, this suspicion is not limited to the fear of a faceless regulator: the research found that financial advisers are generally far from the trusted-confidante role that so many aspire to.

Advisers divorced from objectives

The study, The Influential Investor: How Investor Behaviour is Redefining Performance, found that less than half of the Australian survey participants believe their advisers are acting in their best interests when offering products and services.

From an investment perspective, such skepticism is arguably a valid response given the performance of markets over the past four years.

Indeed, Kelly McKenna, global head of CAR, comments that: “While investors have never been as aware of their micro and macro environments, they are exhibiting behaviors that are divorced from their stated investment objectives.”

The study concluded that investors’ seemingly irrational behavior is actually a rational response to a number of factors impacting the current global investment environment.

This is the result of a combination of factors including: major economic trends, mistrust of their primary investment provider and new financial regulation that most believe will be ineffective and expensive.

Globally, only a third of investors believe their primary investment provider is acting in their best interests, with most of the cynicism resulting from a perceived lack of value delivered versus fees charged.

Goals and actions deeply disconnected

However, managing the expectations of investors who aren’t acting in their own best interests and who make investment decisions that don’t always align with their stated goals is far from easy.

For example, when retail investors were asked what steps needed to be taken over the next 10 years to retire, the majority said to invest more; however, 31 per cent of their assets are in cash.

Against this backdrop of investor disconnect between behavior and goals, the study found that investors identified performance as the most important metric for determining the value of their investment providers.