Savers keen to move money into the stock market face being blocked by companies using ‘robo-advisers’ that rule them unfit to invest.
Thousands of people a year are failing tests set to determine if they are suitable investors – and are then turned away.
Online wealth managers use complex formulae to assess wannabe investors.
Companies competing in this space include Nutmeg, Wealthify and Moneyfarm. Computer algorithms they use are known as robo-advisers.
In screening new customers, robo-advisers routinely filter out those deemed too nervous, too debt-ridden or too light on savings
In screening new customers, they routinely filter out those deemed too nervous, too debt-ridden or too light on savings. People who fail have their applications for an account turned down.
Though most rejections are for valid reasons, good candidates can also be sifted out because of seemingly arbitrary questions – including how often you plan to check your account and how you would feel about poor investment performance. In some cases, having no experience of investing can count against you.
Holly Mackay, of investing advice website BoringMoney, says: ‘The main problem is that through regulation and complexity we make it much harder for people to start investing than it is to gamble. It is anachronistic and a bit daft.’
Glen Curry, 35, was rejected twice in his bid to invest before finding success third time around.
He says: ‘I was quite surprised by some of the questions asked by the first company because I did not always have straightforward responses. I was asked how I would feel about different scenarios.
‘For example, how often did I think I would log in to check the value of my investment – every day, week or month?’
Glen, who works as head of quality for a transport business and lives near Tamworth in Staffordshire, says: ‘I was not quite sure what actually made me an unsuitable investor.’
He had £5,000 sitting in cash savings earning little interest, and he was desperate to build a deposit for a home. He then tried Moneyfarm which also has a set of screening questions and this time was allowed to invest.
Not ready to invest
In most cases questionnaires weed out people who have debts to settle or a lack of ‘rainy day’ savings.
Investment platform evestor, which launched in May 2017, turns down two thirds of investors, mostly for these reasons.
Co-founder Anthony Morrow says: ‘For those rejected, we try to help them get ready for investing at some point in the future by helping them put in place basic financial foundations. We would not recommend anyone invests for the long term if they do not have access to a pot of cash for the short term.’
A less common reason for turning customers away is someone not wanting to take any risk at all with their money. All investments carry some element of risk. The screening test can also stop older investors from taking a wrong step with their finances, even if at first glance they fit a typical investor profile.
Nutmeg, which looks after more than £1billion of client money, says it requires customers to set an investment timeframe of three years and may not accept those whose appetite for risk is too low.
Lisa Caplan, the company’s head of financial advice, says: ‘During the assessment we also talk to customers about the potential for losses.’
The questionnaire also weeds out people who are suspected of being flippant or dishonest. She adds: ‘You will be intercepted if you consistently pick the middle option – neither agreeing nor disagreeing – or if your answers are inconsistent.’
Additional reporting by Evangeline Twyford