Why a client chooses you

Clients tend to choose their advisors based on trust, finds a global CFA survey. For advisors who want to improve that trust, the survey offers suggestions.

“Trust has consistently been the greatest determinant in selecting a financial advisor,” says the survey, which has been conducted for five years. In fact, trust beats investment performance by a margin of almost 2:1, finds the survey.

For instance, Canadian investors say the most important attribute for hiring an investment firm is that they trust the firm to act in investors’ best interest (40% of investors surveyed). Next is the ability to achieve high returns, but that attribute was cited by only 17%.

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Still, returns remain important, with 53% of Canadian investors saying underperformance is a reason for leaving their investment firms. Lack of communication is next, cited by 43%.

Transparency on fees and conflicts is a potential area where advisors can improve trust. While 63% of Canadian investors say their advisors are generally transparent, that figure drops a bit—to 60%—for fee transparency, and to 56% for transparency about conflicts of interest.

Read: MFDA finds lack of clarity on trailing commissions

Global disclosure results weren’t as positive. While 84% of investors say trust in advisors is mostly driven by full disclosure of fees, and 80% cite disclosure and management of conflicts of interests, only 48% are satisfied with fee disclosure, and 43% with conflict disclosure.

The survey also finds that Canadian investors tend to rely on humans for advice and on technology as an execution tool. Valuing personal relationships more than a firm’s brand or technology is evident in the two-thirds of Canadian investors (66%) who work with financial advisors, compared to 54% globally.

Overall, trust in financial services is stronger in Canada than in many other markets, with 51% of Canadians surveyed saying they “completely trust or trust” the financial services sector. That compares to 44% globally.

Increasing trust with standards and professionalism

Globally, about two-thirds of retail investors and institutional investors (64% and 70%, respectively) say trust increases when they’re told their investment firms adhere to voluntary industry codes of conduct.

“Trust hinges on professionalism,” says Rebecca Fender, head of the future of finance initiative at CFA Institute, in a release. “If one-third of investors don’t think their advisor puts their interests first, this is a challenge to our industry to do all we can to earn that trust.”

About three-quarters of retail investors and institutional investors say it’s important that the firms they work with employ investment professionals with credentials from respected industry organizations.

“CFA charterholders are growing in number around the world and are carrying the message forward: as fiduciaries, as stewards of our clients’ money, we must act in their best interests at all times,” says Paul Smith, president and CEO of CFA Institute, in a release.

“But there is work still to be done,” he adds. “Higher trust comes with higher expectations, and we are not there yet until we can consistently prove our value to clients by providing solutions, not simply products.”

To do that, he says universal disclosure of fees and performance is required.

One example championed by CFA Institute is the global investment performance standards (GIPS), a set of industry-wide principles that guide investment firms on how to calculate and report investment results to prospective clients.

For more details see the full global survey and Canadian results.

About the survey: In collaboration with CFA Institute, Greenwich Associates gathered responses from 3,127 retail investors and 829 institutional investors worldwide between November and December 2017. Retail investors surveyed were 25 years or older with investible assets of at least US$100,000. Institutional investors surveyed were responsible for investment decisions at entities with at least US$50 million in assets under management. The margin of error for retail investors is +/- 1.9%; the margin of error for institutional investors is +/- 2.1%.

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