Earlier this year, CFA Institute released its third investor trust study, The Next Generation of Trust: A Global Survey on the State of Investor Trust. Below is a summary of the key takeaways, but you can read the complete report here.

Reputation v. Reality

The Edelman Trust Barometer recently indicated that trust in the financial services industry remains low versus other industries. However, there is good news. This latest global trust study by CFA Institute has found that investors’ trust in the financial services industry has increased since the Institute’s 2016 report, noting that 44 per cent of retail investors trust financial services, 35 per cent are neutral, and 21 per cent are distrustful of the industry. Furthermore, institutional investors are far more trusting than retail investors, with 72 per cent of respondents indicating trust in the financial services industry. For retail investors, the biggest gaps in building trust are related to fees and conflict of interest disclosures. For institutional investors, data security is the most important factor. Last, there appears to be some discrepancy between actual client experiences, which were positive, and the industry’s more negative reputation. Most retail investors feel their advisers are accessible, transparent, and fair, yet only 65 per cent of retail investors said their adviser is their most trusted source of advice.

The Clients

Trust is a key factor for investors. Retail respondents overwhelmingly choose trustworthiness over investment performance (by a 2:1 ratio) as the top desired attribute when selecting a financial adviser, while institutional investors focus equally on trustworthiness and the adviser’s ability to achieve high returns. About half of retail investors surveyed said that their trust must be constantly earned and maintained; meanwhile, institutional investors are more likely to grant trust from the outset. Communication, data confidentiality, and investment performance are the main trust maintenance factors noted by both retail and institutional investors. Investment professionals can build and maintain investor trust by understanding their goals and fears. One point of interest is that 63 per cent of retail investors said they are interested in more personalized products; and, of that number, a majority would be willing to pay for them. Investor fears are more short term than their goals, while still related, and nearly 40 per cent of retail investors fear another financial crisis within the next three years. Yet most investors—retail and institutional—believe their investment professionals are well positioned to weather the uncertainty another crisis may bring.

Trust in Technology

Trust in technology is generally high, and the survey suggests a strong link between the investment professional’s use of technology and increase in that trust. Seven of the 12 markets surveyed have a preference for technology platforms over individuals, which is an increase from 2016, when China and India were the only two markets that preferred tech. However, technology comes with two challenges: cybersecurity and distrust of robo-advice. Canadian investors still prefer receiving investment advice from human advisers over technology. In fact, 45 per cent of the Canadian investors interviewed “distrust or completely distrust” the robo-advisor industry.

Trust and Value

Trust and value are a function of both credibility and professionalism. The equation was introduced by CFA Institute in its report on the future state of the investment profession, and it gives investment professionals tools to help them build trust. Credibility factors include reputation, brand, and credentials. Eighty per cent of Canadian investors believe it’s important for investment professionals to have credentials from respected industry organizations. Qualities that convey a professional status include competency and values, with 77 per cent of Canadian investors saying they’d be more trusting of investment firms that promote continuing professional education.

The global survey also offers eight steps that professionals can follow so as to increase their credibility and professionalism in the eyes of their clients:

Credibility

1. Maintain strong brand identity and follow through on brand promises.
2. Employ professionals with credentials from respected industry organizations.
3. Stay focused on building a long-term track record to demonstrate competence.
4. Adopt a code of conduct to reinforce your firm’s commitment to ethics.

Professionalism

1. Improve transparency and clarity regarding fees, security, and conflicts of interest.
2. Use clear language to show that client interests come first.
3. Showcase your ongoing professional development to improve investment knowledge.
4. Demonstrate your dedication to values that clients hold dear.

Investor trust continues to be a vital component for success of the investor-adviser relationship. It’s a differentiation factor for investment professionals in this competitive industry. And while investor trust in the financial services industry is increasing, there’s more work to be done. We must continue to take actions that will create an industry worthy of greater trust from current and future investors.

Survey Says…

Some fast facts from CFA Institute’s The Next Generation of Trust: A Global Survey on the State of Investor Trust.

45% Canadian investors who “distrust or completely distrust” the robo-advisor industry
40% retail investors who fear another financial crisis within the next 3 years
65% retail investors who say their adviser is their most trusted source of advice