Consumers misjudging product risk levels

An alarmingly high number of consumers do not know how to risk-rate standard financial products, such as equity ISAs and with-profits bonds, research suggests.

According to a study conducted on behalf of the FSA, 26% of more than 2,064 individuals did not know whether to categorise equity ISAs as low, medium or high risk.

Three in ten did not know how to categorise with-profits bonds, while 16% did not know where to place direct investment in shares.

Meanwhile, 37% of respondents said they believed residential property investment represented little or no risk, while a similar number thought it represented a medium risk venture.

Less than half (45%) said they believed direct investment in shares was high risk.

The Consumer Awareness Survey was conducted by TNS Research International on behalf of the FSA. Its study was of a representative sample of 2,064 adults from across Great Britain interviewed face-to-face in their own home.

The FSA said it was important to conduct the research - as it has done annually since 2003 - ahead of its split into the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA), who will be able to measure their success against its findings.

Other key findings from the survey

60% are confident that the FSA effectively regulates the financial services industry, but only 5% are very confident that it does so.

One in three people, overall, thinks that the main responsibility of a financial watchdog should be to ensure that firms treat their customers fairly.

One in eight people surveyed have no financial products.

Overall three in five have no appetite for risk at all on investments, with far fewer - 4% - prepared to take risks to gain higher returns.

Fifty five percent of people surveyed are confident that financial firms treat their customers fairly - but only 4% are very confident, and by contrast 13% are unconfident.

More than one in nine people (11%) surveyed report having a problem with a financial services firm in the previous 12 months.

More than one in six of those surveyed (17%) had received professional financial advice in the preceding 12 months, nearly half of whom from an independent financial adviser (IFA), and two in five from a bank or building society. Three out of five people receiving advice from an IFA were very confident that the advice was appropriate to their circumstances - compared with 33% of those going to banks or building societies.