CFA Institute Survey: Investors Want Transparency

CFA Institute Survey: Investors Want Transparency, Ethics, Performance

Despite uptick on trust in financial services, investor loyalty remains fragile

• Since 2013, retail investor trust has increased in financial services in Australia, the US and the UK; fallen in Canada and Hong Kong
• Investment costs were even more important than performance to investors globally; and firms were not meeting expectations in this area
• Institutional investors ranked ethical standards above all else in important attributes of a firm
• Investors in China and India leaned toward robo-advisor options; investors in Canada, the US and UK still valued human interaction
• Transparency and cybersecurity were key concerns among investors
• One third of investors felt another financial crisis was likely within the next three years; around half of investors lacked confidence in their firm’s ability to manage through a crisis

Auckland 18 October 2016 – According to a newly-released study from CFA Institute, the global association of investment professionals, investors expect higher levels of transparency than ever before, hold their investment managers to the highest ethical standards and remain tightly-focused on returns.

The survey ‘From Trust to Loyalty: A Global Survey of What Investors Want’ follows the 2013 ‘Edelman/CFA Institute Investor Trust Study’ (2013 Study), measuring the opinions of retail and institutional investors globally.

The findings found that investors wanted regular, clear communications about fees and upfront conversations about conflicts of interest. The biggest gaps between what investors expected and what they received related to fees and performance. Clients wanted fees that were structured to align their interests, well disclosed and reflective of the value they were getting from their investment firms.

Dr Jeff Stangl, President CFA Society New Zealand, said the bar for investment management professionals had 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’ well-being, not empty performance promises or tick-the-box compliance exercises. Effectively doing so will help advance the investment management profession at a time when the public questions its worth and relevance,” he said.

Key findings from the study included:

While trust had increased, investors remained concerned about ethics, transparency and performance

• Since 2013, retail investors showed a significant increase in trust of the financial services industry, rising from 50 per cent to 61 per cent. About half the gain is thanks to strong increases in Australia, the US and the UK. The other half was due to higher absolute trust levels in markets not included in the 2013 Study, notably China, India and Singapore.
• Retail and institutional investors shared the view that financial professionals were falling short on the issues of fees, transparency and performance. Among retail investors, the most important attributes of an investment firm were that it “fully discloses fees and other costs” and “has reliable security measures”, even surpassing portfolio protection from losses as a key issue. Among institutional investors, “acts in an ethical manner” rated as the most important attribute followed by “fully discloses fees and other costs.”
• 53 per cent of retail investors and 60 per cent of institutional 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.”
• 45 per cent of institutional investors and 43 per cent of retail investors would leave an investment firm if data security was compromised, demonstrating the importance placed on cybersecurity in today’s markets.
• The study found that once an issue has triggered an investor to re-evaluate their relationship with an investment manager, the majority – 76 per cent of retail investors and 74 per cent of institutional investors – are likely to leave within six months.

“While an increase in overall trust in the financial services industry is a net positive for financial professionals, performance is no longer the only ‘deal breaker’ for investors,” Dr Stangl said. “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. Further, if investment professionals don’t provide this clarity, then regulators may force them to, for better or worse.”

Investors are anxious about global markets and do not believe their investment firms are prepared

• Investors revealed a growing anxiety about the state of global finance. Almost one-third of investors felt that another financial crisis was likely within the next three years (33 per cent of retail investors/29 per cent of institutional investors), with significantly more in India (59 per cent) and France (46 per cent).
• Only half of all investors believed their investment firms were “very well prepared” or “well prepared” (52 per cent retail investors/49 per cent institutional investors) to manage their portfolio through a crisis.

Study reveals key regional differences in what investors value from financial professionals with implications for robo-advisors

• Looking ahead three years, the majority of investors in Canada (81 per cent), the U.S. (73 per cent) and the UK (69 per cent) say they will still value the guidance of an investment professional to help them versus 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. 68 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.

“This year’s results show an important split between the needs of investors in more developed economies and those who represent the future of the global financial industry,” Mr Serhan said.

The takeaway for financial professionals; investors expect more than just performance

Dr Stangl concluded: “Investor demands have become significantly more dynamic. Along with delivering performance, investment professionals must also provide transparency around fees and investment decisions, align their interests with those of their clients and provide robust data security measures. Investment firms that do strike this balance will engender greater trust among investors which, in turn, will drive growth.”

To review the complete report and survey results, visit www.cfainstitute.org/investortrust.

Methodology

The CFA Institute ‘Trust to Loyalty Study’ examines trust in the investment community and the evolving needs of investors. It was produced by research firm Edelman Berland and consisted of a 15-minute, online survey conducted 19 October – 11 November 2015.

The on-line survey sampled 3,312 retail investors 25+ years old with investible assets of at least US$100,000 in the United States, Canada, United Kingdom, France, Germany, Australia, India, Singapore, China and Hong Kong. It also samples 502 institutional investors with assets of US$10 million or more in the United States, Canada, United Kingdom, Singapore, Australia and Hong Kong. The margin of error for Total Retail Investors is ± 1.7 per cent; the margin of error for Total Institutional Investors: ± 4.5 per cent.

ENDS

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