Standards and Professionalism Outrank Returns in Trust-Based Survey

Surveyed investors prefer advice from human interaction versus AI, whereas tech is preferred as strategy tool.

A new survey from the CFA Institute reveals how the investment industry can boost its credibility and earn the trust of its clients.

The 12-market survey of both institutional and retail investors, The Next Generation of Trust: A Global Survey on the State of Investor Trust, discovered retail investors were largely dissatisfied with their advisers. Of the 800-plus institutional investors surveyed, CFA Institute reported that they gain trust in an adviser who: 1) gives full disclosure of fees, 2)  acknowledges conflicts of interest, and 3) generates returns that outperform a benchmark.

However, less than half of the participants reported satisfactory adviser performance on any of these three things. The institutional investors are more satisfied with advisers than retail investors, by 10 percentage points.

“There’s a lot of possibilities,” Bob Stammers, director of investor engagement at the CFA Institute told CIO in respect as to why trust has gone up.“For one, the market is doing better. You’ve had 10 years since the financial crisis for people to get a little more confident about the market itself. The other is experience. If you think about years past there is not as much engagement with retail investors as there is today, so with experience comes more confidence.”

“The whole advent of robo-advisers and now the ability for advice to be provided to the mass affluent and even in smaller accounts helps more people understand the investment management business and the markets itself,” Stammers added.

For more than 3,000 surveyed retail investors, trust is a key reason to hire an adviser as well as performance. The survey shows that although twice as many retail investors prioritized trust over performance in their hiring decisions, underperformance (57%) and lack of communication or responsiveness (51%) were the main reasons for terminating the relationship with their financial advisers.

When it comes to hiring an asset manager, 17% of retail investors marked the ability to achieve high returns as a priority. Top attributes among institutional investors for hiring asset managers are the trust that they will act in the client’s best interests as well as high performance (24%).  

As for technology, investors are much more likely to turn to humans for advice. Although combining machine learning and human interaction can help build trust, technology is still seen more of a tool for execution rather than a distributor of assistance. A staggering 72% of investors were more likely to trust human advice over robotic, with 48% deciding that technology will provide more for their strategy implementation than a human in three years. The survey also found that technological interest has increased since 2016 throughout every market and age group.

“One of the interesting parts of this study was not just about trust but how trust is changing,” said Stammers, who added that technology is a way that investment professionals can better communicate with their clients, especially millennials.

Protection against data hacks and breaches was another trust factor among investors, and although 40% of investors noted that the more mainstream use of tech has raised their trust in financial advisers, they were worried about their data’s vulnerability. In fact, 82% of institutional investors agreed that reliable security measures to defend their data is more important than performance and disclosures.

Lastly, standards and professionalism were a huge chunk of what drives trust for investors across the industry. When told their investment firm sticks to an industry-wide voluntary code of conduct, the trust of 64% of retail investors and 70% of institutional investors increases. Three-quarters of investors surveyed also expressed the importance that the firms they choose to do business with hire investment professionals from respected industry organizations.

“In the past…it was all about returns. Now, you’ve got people that are much more worried about ‘are my interests being taken care of? Is the person I’m giving my capital to really got my interests to heart?’,” said Stammers. “We call it the glue in the financial ecosystem but if you think about it, trust is the centerpiece of any social relationship.”

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