Are investment best buy lists in your best interest?

The Woodford debacle is creating ripples and possibly some waves.

The FCA is now looking at ‘Best Buy ‘ lists. See here. Firms like Hargreaves Lansdowne understand psychology. If you don’t understand something, you need a nudge. So the best buy list is a nudge. And if its a best buy, then individual investors feel safety in numbers. If it’s a bad decision, then there is comfort in not being the only one! It’s a defence mechanism for laziness. Best buy lists are great for the promoters. In fact, best buy lists are actually the easiest ‘to sell’ lists.

According to FCA research, about a fifth of investors base their “preferred investment proposition” on a platform’s “best in class” list.

“The line between what is financial advice and what is not is a bit of a mess,” said Daniel Godfrey, former chief executive of the Investment Association. “Best buy lists are not regarded as advice, despite the fact customers probably think they have received advice when buying funds from one of these lists.”

So what action can investors take? Try not to be as lazy.

If you don’t have the interest or the time to apply intelligent thinking to how you invest, you have to accept the unknown unknowns for you. The investment industry wants your money. It’s a very competitive business, as such, whatever helps them sell to you, is good for fund managers. And ‘best buy’ lists are good marketing. They help you make decisions without the aura of being sold to. And yes, you are being sold to but it’s not that blatant!

Will best buy lists continue? Absolutely. We are human and there is a feeling of safety in numbers. But perhaps there are a few investors who will start to apply more intelligent thinking to how they invest for the sake of their future selves. Is that you?