A new survey from the CFA Institute released this week sets out to examine how trust in the financial services sector has evolved by gauging the perceptions of investors toward the behavior of investment firms and professionals who are entrusted with their money.
The survey, the fourth in a series dating to 2013, measured the opinions of both retail and institutional investors in 15 markets globally, analyzing the dimensions of trust at the system, industry and firm level.
“Trust in the investment management industry during this time is more valuable than ever,” Rebecca Fender, CFA Institute’s senior director for future of finance research, said in a statement. “What does it take for someone to put their capital at risk and trust their funds to someone else to manage?”
Levels of Trust
The survey found that the financial services industry ranked in the middle tier of trust among the industries studied; retail investors said they trusted medicine more than any other industry.
The results showed that half of retail investors said they valued access to technology over access to humans for investment management, up from 38% in 2016 and 48% in 2018.
At the same time, 73% of respondents said they trusted recommendations from a human advisor more than those from a robo-advisor.
Although 75% of retail investors believed financial advisors were legally required to act in the client’s interest above their own, only 35% said their advisor always put their interests first. Among institutional investors, a mere 25% thought their investment firms put client interests first.
The survey found that brand is increasingly used as a signal of trust. Three in four younger respondents said they would rather work with a firm with “a brand I can trust” than one with “people I can count on.”
Retail investors in the survey said trust was their top consideration when hiring an advisor, while for institutional investors, trust and performance went hand in hand as the chief factors when hiring an asset manager.
Only 57% of retail investors without an advisor said they had a fair opportunity to profit from investing in capital markets, compared with 81% for those with an advisor.
The survey sample comprised 3,525 retail investors with minimum assets of $100,000, except in India where the minimum was adjusted to 500,000 rupees ($6,700), and 921 institutional investors with minimum assets under management of $50 million.
The markets included Australia, Brazil, Canada, mainland China, France, Germany, Hong Kong SAR, India, Japan, Mexico, Singapore, South Africa, United Arab Emirates, the U.K. and the U.S.
How Trust Works
The CFA Institute survey found that investors seek more information, innovation and influence — the factors on which trust is dependent — in their interactions with the investment management industry.
“Investment professionals who understand and navigate the layers of investor trust will be better equipped to serve their clients and demonstrate how the investment industry can better serve society,” Fender said
Information is the basis for decision making. The survey found that retail investors with a financial advisor were more than twice as likely to trust investment management firms as those without an advisor.
Eighty-three percent of retail investors and 75% of institutional investors agreed that one of the most important factors in creating a trusted relationship was full transparency about fees and other costs.
But even with the availability of more tools that support better communications and transparency, investor perceptions of transparency have decreased since the 2018 survey, according to the survey.
Innovation enables advisors to meet investors’ needs. Two-thirds of investors surveyed said they trusted their investment firm more because of increased use of technology.
Two-thirds of retail investors with an advisor said they were likely to be early adopters of new investment products, compared with just one third of those without an advisor.
Seventy-one percent of institutional investors said they were eager to invest in funds that employ artificial intelligence. Among early adopters, 48% said they would be more interested in investing in a new product created by a big tech firm, such as Amazon, Google or Alibaba, than one from a financial institution.
Influence concerns the extent to which investors can exert control, for example by investing in line with their values.
Seventy-six percent of institutional investors and 69% of retail investors expressed an interest in environmental, social and governance investing. Two-thirds of institutional investors opined that the growth of ESG investing had increased trust in the financial services industry.
Influence also manifests itself when it comes to fees. Although 73% of investors believed that the fees they paid for advice were fair, high fees were one of the main reasons respondents gave for leaving an investment firm.
More customized products were high on respondents’ wish list. Nearly half of all retail investors, especially younger ones, said they would pay more for them.
Of the 15 markets in the CFA Institute survey, levels of trust in the financial services industry were highest among retail investors in India at 87%, and lowest among those in Australia at only 24%.
The survey found that trust had increased most in Hong Kong SAR, India, the UAE and Brazil, and decreased most in Singapore and Australia.
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