High transaction costs and inadequate information to aid in making investment decision have been identified as the two biggest challenges facing retail investors in local financial markets.

In a study conducted by the Institute of Certified Investment and Financial Analysts (ICIFA), the two jointly ranked highest among challenges facing retail investors in the country at 57 per cent.

These were followed by inadequate capital to invest (50 per cent), low interest rates (43 per cent), illiquidity and high volatility of the market (40 per cent), negative past experience and poor grievance redressal (37 per cent), and unprecedented market disruption for instance, Covid-19 (37 per cent).

According to the report, despite numerous challenges, the Kenyan Retail Investor has been critical in the development and growth of the financial sector.

Market inactivity

“The key challenges have been high transaction costs and insufficient information to aid in making sound investment decisions, as well as market inactivity regarding IPOs and poor communication from investment institutions and regulatory bodies,” it reads in part.  

Other challenges facing retail investors in the local financial markets are limited innovation in product offerings (30 per cent), lack of transparency in some of the fund managers (27 per cent), multiple regulatory frameworks (27 per cent), and limited support from intermediaries (23 per cent).

Those surveyed also identified lengthy procedure for investing, long redemption time in the next of kin asset acquisition, lack of clarity on tax issues and lack of new listed companies as some of the challenges facing retail investors in the local financial markets.  To overcome these challenges, most of the respondents in the study (24 per cent) recommended that more products be introduced in the market that borrowing and lending of securities to retails investors be allowed.

This was followed by the recommendation that investor education, trainings and workshops that foster ethics within financial services be promoted (21 per cent). Other recommendations include better enforcement by the regulator, doing more marketing, increasing transparency for all marketers, and removing investment bureaucracy, among others. 

“Certain policies, procedures, regulations, and institutions of the sector have harmed the development and growth of retail investors. Policy such as the KYC policy has been viewed as cumbersome and repetitive which discourages investor participation,” says the report.

According to the study, personal research is the main source of information for potential investments at 77 per cent.

However, a vast majority of investors (82 per cent) rely on their own skills and knowledge of the market to make investment decisions.

Only 48 per cent of retail investors in Kenya’s financial markets rely on professional and investment advisors, the study adds. Others rely on financial information available in the market (73 per cent), recent trends in returns (62 per cent) and popular opinion about the market (42 per cent).

Investment choices

Family and religious background and opinions of friends and colleagues were cited as the factors that influence the investment choices by 40 and 31 per cent of respondents respectively.

Stockbrokers, investment banks, insurance companies and commercial banks are the top four best known financial market players at 33, 26, 26, and 22 per cent respectively.