Data & Research December 16, 2010

Fearful Investors Can Use an Adviser's Help

In a survey examining investor behavior, MFS Investment Management clarifies what makes “fearful” investors act the way they do and ways an adviser can help.
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MFS commissioned a survey of 613 consumer investors with $100,000-plus in household investable assets in August 2010. The company classified 12% of respondents as “fearful,” 18% “hopeful,” and 11% “opportunistic.” The “fearful” investors are most likely to benefit from using an adviser, MFS said.

Of fearful investors::

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  • 89% were very concerned about another serious drop in the stock market
  • 73% have lowered their expectations about what life will be like in retirement
  • 71% were pessimistic in their outlook for the U.S. economy over the next five years
  • 62% prefer low risk investments today even if means low returns
  • 61% identify themselves as a saver more than an investor
  • 54% agreed that they will never feel comfortable investing in the stock market again
  • 49% are overwhelmed by all the different investment choices they have available to them
  • 48% said their need for financial advice has increased since the downturn
  • 39% decreased their contributions to 401(k) plans and individual retirement accounts (IRAs)
  • 37% of their portfolios are in cash

As previous studies have found, knowledge about investing leads to confident investors.  MFS found that of investors in the “opportunistic” segment, 54% considered themselves to be very knowledgeable about investing and only 3% considered themselves to be novice investors. In contrast, 35% of fearful investors considered themselves to be novices and 16% considered themselves to be knowledgeable about investing.

During times of market volatility, 20% of all respondents would prefer e-mail on a weekly basis from their adviser, according to the survey. Preference for e-mail is more than double for any other contact channel preference (phone, in person, mail). Respondents are more comfortable with less frequent contacts by phone (monthly or quarterly) or in person (quarterly or annually).

“Education might be what is needed the most to help build the confidence of investors, especially for those classified as fearful,” said Bill Finnegan, director of Global Retail Marketing for MFS. “We’re closing out a decade book—ended by the dot-com bubble burst and the worst recession since the Great Depression—perhaps reengaging with clients about investing basics would be a good place for advisers and their clients to start, to help to make the novice less nervous.”

 

The Markets December 16, 2010

Fidelity Unveils Stock Option Netting Service

Fidelity Investments has launched its automated stock option netting functionality.
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Stock option netting is a cashless process through which the issuing company allows a participant in a stock plan to use a portion of shares being exercised to cover the cost of exercising the shares, including applicable tax withholdings and options costs, according to a Fidelity news release.

Unlike the traditional way of exercising stock options, the “netting” process does not require an employee to put down any cash when exercising shares, or to acquire and then sell shares. Employees also save on commission fees due at the time of the exercise, and issuing companies minimize dilution of existing shareholders’ holdings, Fidelity said.

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This new method of administering a stock option plan has been growing in popularity among employers since the changes to FAS 123R because it makes it easier to plan and manage for share exposure and dilution.  By allowing participants to use shares to cover exercise costs, the company essentially has fewer shares outstanding, reducing the need for company share repurchases in the future, according to the announcement.

“With this automated netting functionality, Fidelity Stock Plan Services offers a seamless netting process that is head and shoulders above our competitors and eliminates the manual processes used by many other stock plan administrative providers,” said Joan Bloom, senior vice president for Fidelity’s stock plan services business, in the news release.

Fidelity’s stock plan business services 230 employers across the country with $125 billion in grant value.

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