Concerns over consumer protection in Simon Harris’s promised investment accounts

Consumer protection has featured very little in talk about Tánaiste Simon Harris’s proposed new personal investment accounts, the Society of Actuaries has warned.“We hear little discussion about how the consumer protections appropriate to individual savers and investors should be brought to bear in the scheme,” the organisation said in a letter to Harris and Minister of State Robert Troy published on its website on Thursday.Actuaries specialise in analysing and mitigating risk.Under the auspices of European Union moves to create a cross-bloc savings and investment union, Harris has announced his intention to create a new type of tax-efficient, easy-access investment account.READ MOREThe aim to to persuade Irish households to make better use of at least some of the €170 billion held on deposit with Ireland’s big banks, earning little or no interest.The Minister is expected to deliver details of how the scheme will operate in the October budget.The Society of Actuaries has welcomed the plan to introduce investment accounts for consumers and support better use of household savings, but said it was concerned about the prominence in discussions of stock picking – targeting shares in individual companies.Their letter refers back to the catastrophic experience of many investors who put their money into Irish “blue-chip” bank stocks before the financial crash – much of it retirement lump sums. Bank stocks were regarded as a low-risk investment with the added attraction of regular dividend income. “When those shares collapsed in value, the concentration of savings in a small number of stocks left ordinary investors far worse off than a diversified portfolio would have,” the society’s letter said.It said EU rules classed investment in individual company shares as “non-complex ... so buying them execution-only attracts none of the safeguards that apply to most retail investment in Ireland”.While “buyer beware” might make sense in a market of experienced investors, it cautions against “a State-promoted, well-publicised, potentially incentivised investment scheme that has the potential to draw significantly more inexperienced consumers toward concentrated positions than is currently the case”.The actuaries’ letter advised that the proposed investment account design should actively encourage savers to put their money into “well-diversified investment solutions”. “These offer first-time and less experienced investors a genuine opportunity for growth and channel capital to enterprise just as directly as single-stock holdings without exposing investors to the concentration risks that have been experienced in the past and that are known to have a detrimental impact on consumer behaviour and investor outcomes,” it said.Finally, the society advised that the design of any investment accounts should be “grounded in the current level of financial literacy among Irish savers, not the level we hope to reach in time”. “Meaningfully raising financial literacy will require sustained effort over many years from Government, industry and educators alike,” it said.