Kenyans are increasingly burning their fingers by making poorly thought out investment decisions as a result of shoddy information gathering and the love for high returns.
From investing in collapsing companies to swimming in the tide of the gambling craze, tales of investments gone sour are as many as those of starting businesses that never live to celebrate their first birthdays.
Many people struggle with answers to how they should control the never-ending expenses and save for a rainy day.
When they succeed in this, they meet the minds of business persons like Robert Allen, the author of ‘The One Minute Millionaire’ asking: How many millionaires do you know who have become wealthy by investing in savings accounts?
That pushes them into putting their savings into something ‘worthwhile.’
But investing in an era of too much information has sometimes meant too many options to choose from.
Those who go online in search of financial advice are well too familiar with the outcome: An almost equal number of articles by different pundits vouching for or against a particular investment decision.
The outcome is confusion, just like when one decides to invest their money in shares. At the Nairobi Securities Exchange, you meet one group of brokers advising their clients to buy a particular stock. At the same time, another group is advising their clients to sell. And all of them believe they are right.
“If stock market experts were so expert, they would be buying stock, not selling advice,” Norman Ralph Augustine, a US aerospace businessman once said.
This paints the reality with expert advice: Sometimes it works, sometimes it does not.
However, investment analysts say this should never be the basis of not seeking one.
A 2019 Financial Access Household survey showed that 51 per cent of Kenyans reported a worse financial position in contrast with 34.3 per cent in 2016.
The survey further showed that over 50 per cent of borrowers sold assets, borrowed more or cut back on expenses to repay loans while a quarter were using over half of their monthly income to service loans.
Yet, only less than seven percent of Kenyans reported having looked for professional advice to manage their finances. Instead, 40 percent relied on their own wisdom while 35 percent used friends and relatives. Another 11 percent depended on newspaper adverts.
Elizabeth Irungu, ICEA Lion Asset Management general manager for business development and client relations says many Kenyans disregard expert advice and opt to walk into high risks in search for quick riches.
“They look for excessive returns which conventional wealth managers cannot replicate unless they lie. Some come saying they want to double their money with-in two years. Or want to invest for as short as six months at a lower risk but get returns in excess of 15 percent,” she says.
This has driven many into the hands of informal institutions such as shylocks.
Ms Irungu adds that a promise of higher returns blinds many people.
“Return seems to be everything and they ignore the risk,” she says.
A year-end poll by research firm Tifa showed 33 percent of Kenyans want to start businesses in 2020. However, many, will not be engaging any expert before opening that shop.
Wealth management experts and independent advisers tend to focus on the wealthy clientele, says Zamara, a company that specialises in actuarial, pensions, medical and insurance solutions.
It adds that the culture that any normal person can just walk into one of the professional firms and ask for advice does not exist.
“People may also think that the cost associated with accessing these professionals and their services is higher than it actually is,” says actuarial team at Zamara.
According to Neha Datta, an investment consultant at Zamara, professional financial advice is not packaged in a way that everyone would be able to understand.
“Kenyans would then prefer to talk to their friends and family about finance and related matters because- whether they are experts or not- these people probably convey the message in a more understandable way, which makes it easier and more convenient,” says Ms Datta.
She adds that experts are also carried away by the allure for commissions as opposed to client’s needs and capabilities. They therefore end up giving poor advice.
The cost of financial advice is also seen as deterrent even though experts say the resultant benefits outweigh it.
Centonomy, which runs personal financial management programme for instance charges Sh43,500 for a 12-week training of two and a half hours per week. This covers topics like managing monthly expenses, servicing debt, where to invest and how to retire.
Zamara group CEO Sundeep Raichura says the perception of high costs, natural unwillingness to pay for financial advice and an inherent mistrust of financial services providers is also to blame.
“Sadly, many Kenyans thus end up taking inappropriate financial decisions or at worse falling prey to pyramid schemes, betting and scams,” says Mr Raichura.
Appropriate financial advice at every stage of life adds immense value even after the cost of advice is taken into account.
For instance, Mr Raichura notes, a heavily indebted person for whom the interest on debt would outweigh potential returns from an investment is better advised to first reduce or pay off the debt.