“The bar for investment management professionals has never been higher,” Paul Smith, president and chief executive of CFA Institute, said Wednesday in a statement announcing the institute’s new global survey asking retail and institutional investors what they want.
As always, investors want robust performance, but they also demand regular, clear communications about fees, upfront conversations about conflicts of interest and easy-to-understand investment reports.
“Building trust requires truly demonstrating your commitment to clients’ well-being, not empty performance promises or tick-the-box compliance exercises,” Smith said. “Effectively doing so will help advance the investment management profession at a time when the public questions its worth and relevance.”
And how did investors in the study rank financial services among businesses they trust?
Above automotive, entertainment and media, but below technology, food and beverage, brewing and spirits, pharmaceuticals, banks, telecoms, consumer packaged goods and energy.
Edelman Berland, a research firm, conducted an online survey from Oct. 19 to Nov. 11, sampling 3,312 retail investors 25 and older and with investable assets of at least $100,000 in the U.S., Canada, the U.K., France, Germany, Australia, India, Singapore, China and Hong Kong.
It also sampled 502 institutional investors with assets of $10 million or more in the U.S., Canada, the U.K., Singapore, Australia and Hong Kong.
Trust Increases — With Caveat
Retail investors’ trust of the financial services industry has increased significantly since the last study in 2013, rising from 50% to 61%.
The Institute, which provides the chartered financial analyst designation, said about half the gain owed to strong increases in the U.S., U.K. and Australia.
The other half was due to higher absolute trust levels in markets not included in the earlier study, notably China, India and Singapore.
However, both retail and institutional investors said financial professionals were falling short on issues of fees, transparency and performance.
For retail investors, an investment firm’s most important actions are that it “fully discloses fees and other costs” and “has reliable security measures.” These even trump protecting their portfolio from losses.
Institutional investors rated “acts in an ethical manner” as the most important attribute, followed by “fully discloses fees and other costs.”
Still, performance is important. Fifty-three percent of retail investors and 60% of institutional investors cited “underperformance” as the biggest factor that would lead them to switch firms, followed by “increases in fees,” “data/confidentiality breach” and “lack of communication/responsiveness.”
Forty-five percent of institutional investors and 43% of retail investors said they would leave an investment firm if data security were compromised.
And in a powerful heads-up to investment managers, the study found that once an issue had triggered an investor to re-evaluate the relationship with an investment manager, 76% of retail investors and 74% of institutional investors were likely to leave within six months.
Smith noted that “performance is no longer the only ‘deal breaker’ for investors. They are continuing to demand more clarity and service from financial professionals and, with the rise of robo-advisors, they have more alternatives than ever before.”
A Look Ahead
Investors in the survey revealed growing anxiety about the state of global finance.
Nearly a third of investors felt that another financial crisis was likely within the next three years.
This sentiment shot up to 46% of investors in France and 59% of those in India.
Moreover, only half of all investors considered their investment firms “very well prepared” or “well prepared” to manage their portfolio through a crisis.
Looking ahead three years, 81% of Canadian retail investors, 73% of those in the U.S. and 69% in the U.K. said they would still value professional guidance with their investments versus having the latest technology and tools.
In contrast, 64% of retail investors in India, 55% in China and about half in Singapore believed that having access to the latest tech platforms and tools would be most important to executing their investment strategy.
Sixty-eight percent of retail investors in India and 56% in China considered brand to be more important than people when it comes to trust.
— Check out What Doctors and Families Have That Advisors Don’t on ThinkAdvisor.