The need for trust between advisors and clients is critical for positive client outcomes, perhaps especially so in this uncertain economic environment. The CFA Institute detailed ways advisors and firms can improve their trust with clients in its latest trust survey, released this week.
The survey found that trust can be built by providing clients with three things: information to make decisions, innovation to meet their needs and control when choosing investments.
For example, related to information, 83% of retail investors globally said one of the most important factors in creating a trusted relationship is fully disclosing fees and other costs.
Fee transparency could be a particularly important area of improvement for advisors, because the survey found that investor perception of transparency has decreased over the last two years. In 2018, 56% of retail investors said fees were “very transparent.” This year, that figure dropped to 50%.
Digital offerings are also important to investors. Related to innovation, nearly half (48%) of global retail investors said they trust their advisors more because of increased technology use, up from 40% in 2018. For younger investors especially, tech is an expectation, the survey said.
At the same time, advice remains the domain of humans. Globally, 73% of respondents said they prefer human investment advice to a robo-advisor — relatively unchanged since 2018 — and that figure jumps to 81% for Canadian respondents. “Economic intuition and experience are still valued in a financial advisor,” the survey said.
Regarding client control, advisors may want to consider their product offerings. More than two-thirds (69%) of retail investors said they’re interested in environmental, social and governance investing. Investors also showed significant interest in customized products: almost three quarters (71%) of Canadian investors said they’re interested in personalized products, up from 50% in 2018. Further, nearly half of respondents overall said they’re willing to pay more for such products.
Investors also seek control over net-of-fee performance results by negotiating fees, the survey said. While high fees are one of the top reasons to leave an investment firm, 73% of respondents said the fees they pay are fair.
Where trust lags
By some measures, trust hasn’t improved since the last survey in 2018.
In Canada, trust in financial services was unchanged in the latest survey, with 51% of respondents saying they trust the industry.
Globally, the measure improved to 46% from 44%.
Also unchanged was the percentage of investors who said their advisors always put their interests first — a mere 35%. Most investors (75%) believed their financial advisors were legally required to do so.
A decreasing percentage of respondents said their advisors were their most trusted source of advice: 59% of investors compared to 65% in 2018.
The CFA Institute said that figure needs to be higher to diminish the trust gap in advisory relative to other industries.
Medicine was the most trusted industry, with 68% of retail investors scoring it a four or five on a five-point scale. In comparison, financial services received that rating from 46% of global survey respondents, placing it in the middle of the pack.
To improve trust, the survey suggested advisors focus on such things as professional credentials and adoption of industry codes.
For example, when advisors comply with a voluntary code of conduct, 79% of Canadian respondents said they trust them more.
Advisors may also want to highlight their continuing education. The survey found that 82% of retail clients would trust a firm more if it required annual continuing education.
For full details, download the CFA Institute trust survey.
About the survey: On behalf of CFA Institute, Greenwich Associates conducted an online survey of 3,525 retail investors and 921 institutional investors in October and November 2019 in 15 markets around the world. Retail investors were 25 years or older with investable assets of at least US$100,000, except in India, where the minimum was adjusted to 500,000 rupees.