Investor trust in financial services is at an all-time high, with factors such as strong market performance, fee compression and technology-enabled transparency among the main contributors, according to a new CFA Institute study.
According to the 2022 CFA Institute Investor Trust Study, trust in financial services among both retail and institutional investors increased significantly since the previous biennial study was released in 2020. Retail investors’ trust in financial services increased 14 percentage points to 60% in 2022.
Institutional investors’ trust in financial services increased 21 percentage points over the same timeframe, to 86%.
The study found the most trusted segment of the financial services industry among retail investors to be consumer banks, with 57% of retail investors saying they either trusted or completely trusted the banks.
“This finding is consistent with consumer banking being a core service that most depend on for everyday activities,” the study stated.
Conversely, only 33% of retail investors said they trusted or completely trusted robo-advisors — the same proportion that said they distrusted or completely distrusted the services. That made robos the least trusted segment in the survey, though their trust level increased by six percentage points from 2020.
Trust in financial services was higher among retail investors who had an advisor (69%) as opposed to those who didn’t (47%). Retail investors reported that the most important attribute of an advisor is that they’re trusted to act in the investor’s best interest.
The study also highlighted gaps between what retail investors with advisors expect from their financial professionals and what advisors actually deliver.
For example, 79% of retail investors said their advisors should charge fees that reflect the value they get from the relationship. However, only 52% of retail investors said their advisors delivered on that statement.
Further, 88% said advisors should fully disclose fees and other costs to create a trusting relationship. However, 59% said their advisors are doing so (a 29-point gap, down from a 34-point gap in 2020).
The study added that institutional investors did not report a “meaningful gap” between their expectations and reality.
Reasons for higher trust
The top three factors driving higher levels of trust between the investor and the advisor were market performance, fee compression and technology enabled transparency.
With the S&P 500 and NASDAQ averaging returns of more than 20% the past two years, these high returns “could conceal trust issues that may arise in a market contraction,” the study noted.
Further, the top reason retail investors said they’d leave an advisor is “underperformance,” with 42% of retail respondents indicating that in this year’s study.
As for fee compression, “passive investing and zero-commission trading improved the fee environment for retail investors, reducing barriers to entry and enabling access to investment products,” the study said.
With technology-enabled transparency, the “increased adoption and integration of technology resulted in more information and better transparency, improving investor understanding and confidence in markets,” the study noted.
The survey was conducted by research and analytics firm Greenwich Coalition. The firm conducted the survey in October and November 2021 across 15 global markets, surveying 3,588 retail investors and 976 institutional investors.