The Bar For Asset Managers ‘Has Never Been Higher’ – CFA Institute Survey
Trust Among Investors Higher, But Financial Services Still Ranks Relatively Low
Since CFA Institute and Edelman last conducted the Investor Trust Survey in 2013, investors’ trust in the financial services industry to do what is right has generally increased. In addition, investors have a slightly more favorable view of the industry (61% for retail investors and 57% for institutional investors) versus the general population surveyed in the 2016 Edelman Trust Barometer (51%), but in both groups, financial services remains in the bottom tier of trust relative to other industries.
How much do you trust businesses in the financial services industry to do what is right?
Investor Trust In The Financial Services Industry Continues To Rank In The Bottom Tier
How much do you trust businesses in each of the following industries to do what is right?
Today, investors in the majority of markets are considered “trusting” toward the financial services industry
Comparison of Retail Investor Trust Levels: 2013 vs. Today
Canada and Hong Kong (two markets with high trust levels in 2013) have seen declines in trust; the U.S., Australia and the U.K. have climbed. In this survey, we expanded our global reach to include France, Germany, China, Singapore and India. Among retail investors, those in China and India had much higher absolute levels of trust (90% and 89% respectively) compared to investors in other markets, though these are also the markets where relationships with investment managers are newer — only 22% in China and 22% in India have worked with their primary investment firm for seven or more years. This is relatively low when compared to retail investors in the U.S. (69%). Globally, 45% have worked with their primary investment firm for 7 or more years.
Meanwhile, despite continuing questions on whether the markets are functioning well and offer equal opportunity to investors, 77% of retail investors worldwide still believe they have a fair opportunity to profit in capital markets, with investors in Singapore (90%) and India (88%) in particular reflecting this sentiment. Among institutional investors globally, it is 86%. This reflects the fact that investors have never had it better in terms of efficiency, speed, and pricing in the marketplace, and demonstrates a clear role for asset managers to help clients successfully navigate the markets and achieve their goals.
Asset managers – Investor Loyalty Not To Be Taken For Granted
Investors have mixed loyalties to their investment managers. When asked what would make them leave their current firm, the top response was underperformance (53% of retail investors and 60% of institutional investors). Other common triggers for a move include fee increases, a data or confidentiality breach, and lack of communication and responsiveness. Once they consider a move for any reason, 76% of retail investors and 74% of institutional investors will switch investment firms within six months.
Similarly, only 51% of retail investors and 41% of institutional investors would recommend their current firm, suggesting an underlying weakness in loyalty. The importance of recommendations as an indicator of trust and loyalty has motivated the adoption of metrics like the Net Promoter Score®, used by firms who want to grow their business by word of mouth.
How likely are you to recommend an investment firm you work with to others?
Loyalty At Risk During Crisis
A time that loyalty is particularly at risk is during a crisis, with 27% of retail and institutional investors saying they would re-evaluate their asset manager based on their performance through a crisis. While a crisis may seem an unlikely scenario to most investment professionals, recent history has influenced the thinking of investors, and many are concerned about the prospect of another financial crisis in the near future.
A significant proportion of investors ? one in three ? think another financial crisis is likely within the next three years, and it’s the younger investors aged 25 to 44 who are most concerned. Surprisingly, investors over 65, those likely in a draw-down phase of investing and therefore the demographic most exposed in the event of a downturn, appear least concerned. Geographically, concerns are higher among retail investors in India (59% say a crisis is very or extremely likely) and France (46%), while the U.K. is at the other end of the spectrum at only 19%.
In the face of such uncertainty, investors are much more cautious in how they would approach a potential calamitous financial event ? well over a third of both retail and institutional investors indicated they would reallocate their portfolios to less risky financial products and would focus more on risk management than returns in the event of a crisis. Importantly, however, institutional investors are also likely to balance this with an opportunistic eye to take advantage of price dislocations. Meanwhile, the top expectations of all investors from their investment firms during this time include taking swift and decisive action to protect their portfolio, providing market updates and portfolio implications, and communicating regularly.
How Likely Is It That There Will Be Another Financial Crisis Within The Next 3 Year?
Investors Require Actions That Demonstrate Transparency
Market turmoil also has contributed to a need for greater openness and engagement, as investors feel a particular lack of control over their investments during these times. Though markets are always uncertain, investors do not want to be caught off guard by unforeseen developments, and having more information mitigates this concern to some degree.
Investors simply want better information today, and transparency and consistent communication are more important than ever in the client relationship. Investors’ expectations have risen following increased media scrutiny of industry conduct and the availability of information from new technology platforms.
By transparency, investors mean clear, forthright communication: regular, clear communications about fees; upfront conversations about conflicts of interest; and easy to understand investment reports.
Transparency and consistent communication are more important than ever in the client relationship.
How important are the following attributes when it comes to working with an investment firm?
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