The Institute for Capital Market Research Malaysia (ICMR) today launched its latest research report titled “New Age Vulnerabilities: Understanding Investor Vulnerability within the Malaysian Context”. Based on its findings, the report highlights that Malaysians experience overlapping vulnerability drivers that impair their ability to make sound financial decisions. As a result, they are more likely to fall victim to scams, be inadequately prepared for retirement, and face everyday difficulties while investing.
ICMR’s research was motivated by the need to develop a comprehensive and empirically informed understanding of how Malaysians experience vulnerability in their investment journeys. Many investors today are at risk of suffering fraud, financial exploitation, or the effects of unsuitable investments due to the changing nature of financial services, financial decision-making, and access to information. Indeed, 84% of surveyed respondents said they had received advice on financial products that turned out to be a scam and 36% had lost monies to a scam.
ICMR groups the key drivers of investor vulnerability into three broad categories based on their characteristics: situational (changing circumstances), investor behaviour and accessibility to financial products and services, as well as issues related to the industry. These categories were informed by a benchmarking exercise that compared definitions used by local and global regulators. A nationwide quantitative survey was then implemented alongside qualitative focus group discussions to better understand the investing experiences of Malaysians.
The study found a wide majority of respondents being exposed to behavioural and access drivers (93%), followed by situational drivers (54%) and industry-related drivers (51%). Within the first category, 64% felt either financially unstable or living paycheck-to-paycheck, hence experiencing mental stress. As for situational drivers, 61% felt negatively impacted by difficult events like job loss, income shock, or the deaths of close relatives. Meanwhile, 70% experienced difficulties in engaging with financial service providers, including unsuitable pricing or terms.
Nonetheless, the findings also indicate that different types of vulnerability are frequently overlapping and closely interconnected – meaning that financial distress is not always attributable to a particular cause. The experiences within each vulnerability category are as diverse as the experiences of vulnerability across the group as a whole. Moreover, financial or investment scams have cut across all groups of the surveyed population, with those susceptible driven greatly by greed and herding behaviour from the influence of family or friends.
The third Capital Market Masterplan (CMP3) launched by the Securities Commission Malaysia (SC) in 2021 mentions the “identification and assessment of vulnerable investors” as a top priority over the next five years for “enhancing focus on protecting investors against vulnerabilities”. As such, ICMR’s research seeks to assist the SC’s enhancement of investor frameworks and protection efforts for reducing the harm experienced by vulnerable investors, as well as provide context for firms to deal with vulnerable clients and provide appropriate levels of care.
In this regard, ICMR recommends a dual and systematic approach to address investor vulnerability in the Malaysian context. Firstly, there is a need to build financial resilience across the population by addressing intersectional vulnerabilities, which include both structural and behavioural barriers. This must then be complemented with a targeted approach to deal with vulnerable investors, including enhanced suitability assessments and regulatory oversight as well as educational and training programmes.
“Our research has shown that vulnerability drivers can impact Malaysian households and individuals at many different life stages, situations, health levels, even different investment experiences. The combination of behavioural and structural issues goes beyond the ambit of any single regulator or agency, which is why there is a need for a whole-of-nation approach across jurisdictions. In line with this, behavioural insights including the trigger points identified by ICMR should be incorporated into every stage of a policy cycle for more effective implementation”, said Datin Azleen Osman Rani, Director of ICMR.
ICMR’s survey was distributed from April to June 2022 to 2,019 respondents across East and West Malaysia, aged between 18 – 70 years old. Hard recruitment quotas were used to ensure a representative sample of age, racial, and monthly household income distribution akin to the Malaysian Department of Statistics’ Census. To provide additional context to the quantitative survey responses, qualitative interviews were conducted from July to September 2022 with five targeted focus groups between the ages of 25 – 66 years old.
For more information about ICMR’s research findings, methodology, and recommendations, please download the full report at https://www.icmr.my/new-age-vulnerabilities-understanding-investor-vulnerability-within-the-malaysian-context/.
