My advisor charged me WHAT? (Photo: Thinkstock)

A big gap exists between what retail investors expect from their financial advisors and how satisfied they are with the relationship, according to a study released Monday by the CFA Institute.

Eight-four percent of retail investors said full disclosure of fees was key to their trust in advisors, while only 48% said advisors delivered on this priority.

Likewise, 80% of respondents said disclosure and management of conflicts of interest, and 78% said generating returns that outperformed a benchmark were their top expectations, but only 43% and 44%, respectively, were satisfied with advisors on these priorities.

Institutional investors in the study had similar expectations of their advisors, but were more satisfied that their priorities were being met.

Institutional respondents ranked the factors they considered most important similarly to retail investors. However, the survey turned up a less than 10 percentage-point gap between their expectations of and satisfaction with those priorities.

“We are pleased that investor trust has increased since 2016,” Paul Smith, CFA Institute’s president and chief executive said in a statement. “We attribute this to rising levels of professionalism in our industry.”

Smith noted, however, that “there is work still to be done. We need universal disclosure of fees and performance to drive home this message.”

Greenwich Associates, working with CFA Institute, polled 3,127 retail investors and 829 institutional investors in the U.S. and 11 other countries in November and December. Retail investors surveyed were 25 or older with investable assets of at least $100,000, while institutional investors were those responsible for investment decisions at entities with at least $50 million in assets under management.

The survey found that twice as many retail investors reported that trust in an advisor strongly influenced their hiring decision, but performance had to live up to their expectations if they were to remain in the relationship.

Fifty-seven percent said they would exit a relationship for underperformance, and 51% said they would do so for lack of communication or responsiveness.

Institutional investors ranked the ability to achieve high returns much higher than retail investors when choosing to hire an asset manager, and on a par with trust to act in the client’s best interest.

According to the study, humans still have a leg up when technology comes into play. Seventy-two percent of investors said they were likelier to trust advice from a human advisor over that from a robo-advisor.

However, 48% also said in three years it would be more important for them to have technological tools to execute their own strategy rather than a person.

Although four in 10 investors reported that the increased use of technology had also increased their trust in their financial advisors, they expressed concern about how vulnerable their data may be to security breaches.

Eighty-two percent of institutional investors said having reliable security measures to protect their data was more important even than performance and disclosures.

Two out of three retail investors and seven in 10 institutional investors said hearing that their investment adheres to the industry voluntary code of conduct increased their trust.

As well, three-quarters of both investors said it was important that their firm work employs investment professionals with credentials from respected industry organizations.

“Trust hinges on professionalism,” Rebecca Fender, head of the Future of Finance initiative at CFA Institute, said in the statement.

“Advisors need to demonstrate a strong commitment to ethics, expertise and transparency to win their clients, and create real value for the fees they charge. If one-third of investors don’t think their advisor puts their interests first, this is a challenge to our industry to do all we can to earn that trust.”

The study posited several ways for advisors to improve their credibility and professionalism.

For credibility:

  • Maintain strong brand identity and follow through on brand promises
  • Employ professionals with credentials from respected industry organizations
  • Stay focused on building a long-term track record to demonstrate competence
  • Adopt a code of conduct to reinforce your firm’s commitment to ethics

For professionalism:

  • Improve transparency and clarity regarding fees, security, and conflicts of interest
  • Use clear language to demonstrate that client interests come first
  • Showcase your ongoing professional development to improve investment knowledge
  • Demonstrate your dedication to the values that clients hold dear

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