November 2004
“It’s better to give than receive”, my mother always said – and that’s sure true of advice. Whatever is going on it our lives, it seems that people – often those closest to us – are ever ready with advice about what to do and how to do it.
As human beings, we love to share our experiences under the guise of ‘helping’ others to avoid making mistakes. The reason of course is that it’s easy to give advice and walk away. We generally don’t need to deal with the consequences of people taking our advice (all the more so perhaps because they often ignore it anyway).
Until it comes to financial advice that is…
People seem more receptive to advice about investing – perhaps more receptive than in any other area of their lives. But they are also more demanding that the advice is “right” – particularly (though not exclusively) if they are paying for it. This in turn makes the average investor somewhat less willing to share their opinions with friends and families – who would risk a good relationship on a ‘hot tip’? So people turn, instead, to financial planners and investment advisers to guide their decisions – a certain admission that they are not confident themselves.
This in turn has meant a raft of rules and requirements – most notably relating to disclosure, but more generally to calls for government intervention of some sort – regulation that would prevent ‘just anyone’ setting up as an adviser.
Yet, one would argue, that people have always been relatively good at choosing advisers they can trust – no more so than the interesting case of the bank manager in the small farming town of Quincy, Florida. I came across this story recently when I visited the “World of Coca Cola™” – a monument to the World’s greatest brand, situated of course in Atlanta.
The story, so it goes, is that in the early days of Coca Cola as a public company, there was a bank manager in Quincy – back in the days when local branch managers had authority, of course, to make their own decisions. He was convinced that Coca Cola was the stock to buy, and not only bought plenty himself, but persuaded his customers to do the same. As farmers came to their bank for a loan – to buy their land, capital equipment, or even just fund their cashflow – he would authorize an additional US$500 on the loan specifically for them to buy Coke shares. He felt – he said – that this would provide them with the collateral for their loan.
Well, it all could have turned to custard – but it didn’t, and today Quincy Florida has the distinction of being the hometown of the largest number of people made millionaires through the purchase of shares of Coca Cola stock. Many of them, it seems, just filed their share certificates away and didn’t realize their value until they were well into their old age, or had passed on and left some very surprised and delighted heirs!
Amazing really – a small town bank manager who made so many people rich.
It’s stories like this that make people listen – no matter the source of the advice – and hope that they too will ‘strike it lucky’. In reality of course, investing is harder than that, and the one-stock-wonder doesn’t come round all that often.
And so, we’re left with reality….
One in five of us – that’s 20% of everyone in NZ aged 18 years or older – currently uses a financial planner or investment adviser, including over a third of those who have managed investments. In contrast to the general population, who believe that residential rental property yields the best return on investment, these advice-takers are of the view that managed investments are best (or at least marginally ahead). They also have higher than average expectations of a better return in the forthcoming year.
Will the market meet their expectations – or will they end up having to shoot the messenger?
Debra Hall is Executive Director of Synovate New Zealand Ltd, and has been researching consumer views on investment and insurance products for over 12 years. The views expressed in this column are her personal opinions, based on personal experience and data from surveys owned by Synovate, or used with permission of the clients involved.