Retail investors consider full disclosure of fees and security of data to be the most important attributes in investment managers, outranking even performance, according to research carried out for the CFA Institute.
The survey, From Trust to Loyalty: A Global Survey of What Investors Want, follows the 2013 Edelman/CFA Institute Investor Trust Study (2013 Study), and reflects the opinions of 502 institutional investors and 3312 retail investors globally.
Retail investors were asked what the most important attributes were when it comes to working with an investment firm “Fully discloses fees and other costs” ranked highest, followed by “has reliable security measures to protect my data”, then “clearly explains all fees and costs before they are charged”, while “generates returns similar to or better than other firms” came in fourth.
When institutional investors were asked the same question they ranked “acts in an ethical manner in all our interactions” and “fully discloses fees and other costs” jointly highest, “has reliable security measures to protect my data” third, and “generates returns similar to or better than a target benchmark” fourth.
Paul Smith, president and chief executive of the CFA, in his executive summary, says the survey showed trust levels among investors had risen since 2013, but it was “not all good news”.
“With higher trust comes higher expectations, and the gap between what investors want and what we as a profession are delivering is cause for concern, and action,” Smith (pictured) says.
“Investors want advisers they can trust who have their best interests at heart. They expect greater transparency and communication, especially during periods of market volatility. Increased levels of care are particularly acute during downturns. And, in this digital age, a lack of reliable security measures to protect their data can be cause to find another adviser.”
Anthony Serhan, president of CFA Society Sydney, says the bar for investment management professionals has never been higher with retail and institutional investors, as always, wanting strong performance, but also demanding enhanced communication and guidance from their money managers.
“Building trust requires demonstrating commitment to clients’ wellbeing, not empty performance promises or tick-the-box compliance exercises,” Serhan says.
“Effectively doing so will help advance the investment management profession at a time when the public questions its worth and relevance.”
Trust in financial services
According to the research, 50 per cent of retail investors in Australia trust businesses in the financial services industry to do what is right, compared with the global average of 61 per cent.
Underscoring this issue of trust, only 51 per cent of retail investors would recommend their current investment managers. And when investors started to consider moving managers, for any reason, 76 per cent would switch within six months.
Fifty-three per cent of retail investors cited “underperformance” as the biggest factor that would lead them to switch firms. This was followed by “increases in fees”, “data/confidentiality breach” and “lack of communication/responsiveness.”
Serhan says: “In many ways it highlights the need for higher competencies inside our industry, and highlights the importance of that in terms of winning back trust, or obtaining trust from our clients and the industry across the board. I don’t want to draw it directly into it, but you are still seeing the debate around financial planners and the minimum education requirements there.
“All you are trying to do by introducing these competencies is increase the probability that people will get a better service, and deal with people with a higher degree of competencies. Which is one of the things the CFA is trying to do, not only through the examination process, but also through the ongoing member education, code of conduct and ethics sign-off,” he says.
“Because if you get all of that, if you are a good professional who has the capability, people want to see you.”
Other findings
One-third (33 per cent) of retail investors globally (26 per cent in Australia) believe there will be another financial crisis in the next three years. Only half of these (52 per cent) believe their investment firms were “very well prepared” or “well prepared” to manage their portfolio through a crisis.
Concerning where advice comes from, the majority of retail investors in Canada (81 per cent), the US (73 per cent) and the UK (69 per cent) say they will still value the guidance of an investment professional to help them over having the latest technology and tools.
However, the majority of retail investors in India (64 per cent) and China (55 per cent) and half of investors in Singapore believe having access to the latest tech platforms and tools will be most important to executing their investment strategy. Sixty-eight per cent of retail investors in India and 56 per cent in China consider brand to be more important than people when it comes to trust.
