Trust is a multi-layered concept. It is essential to the proper functioning of capital markets: without it, financial interactions can become inefficient, costly, or cease altogether; as an integral part of the investment management process, any erosion of trust can have negative consequences for the financial industry. In the new COVID-19 reality, investment professionals and advisors are under increased pressure to make clients feel secure in the knowledge that their capital is stewarded by a capable and trustworthy team and firm.

This year, the concept of trust was tested on many fronts: trust in the government, trust in the health care system, and trust in the financial system. As the COVID-19 crisis continues to place severe pressures on public health and the functioning of economies, the need for trust in the institutions and advisors acting on behalf of investors, and the financial system overall, remain vitally important. 

“Trust in the investment management industry during this time is more valuable than ever.” 

— Rebecca Fender, CFA,
Senior Director, Future of Finance Research, CFA Institute ¹

For Canadian investors, confidence in the financial system prior to the pandemic was strong. In the fourth edition of its investor trust survey, conducted in October/November 2019 and released this June as Earning Investors’ Trust: How the Desire for Information, Innovation, and Influence is Shaping Client Relationships,² CFA Institute found approximately half of Canadian respondents placed their trust in the financial services industry and 80 percent believed that their financial advisor puts their interests first. However, belief in an advisor’s ability to deal with a crisis declined, with only 48 percent believing their investment firms were well prepared to manage their portfolio through a crisis: down from 55 percent in 2018.  

Canadian investors at the time of the survey were most worried about trade wars (48%), emerging political risks (29%), and Canadian household debt (26%). While nobody had a global pandemic on their radar at the end of 2019, many of those surveyed looked to the 2008–2009 financial crisis to provide an understanding of how to navigate uncertainty in the future. It is worth highlighting, however, just how different the situation we were in just over a decade ago is from where we are now.

This time it’s different

The current global recession was caused by factors that were external to the economy and capital markets, namely the government-imposed lockdowns that shuttered businesses and curtailed consumer activity. Its origin makes this crisis markedly different from the crisis of 2008 (and subsequent recession), which was the result of questionable practices on the part of a handful of investment industry players combined with deeply seated flaws predominantly in the U.S. economy and capital markets. 

Despite the damage done to individuals by the COVID-19 pandemic, it could have been worse. Governments have been better prepared for this crisis than they were for the previous downturn. Today’s financial system has been far more resilient than it was in 2008, as many of the structural reforms put in place after the global financial crisis and recession have led to increased oversight and more reserves. These measures have strengthened our ability to withstand systemic shocks and, by all accounts, they appear to be working. The damage caused by the pandemic is likely to be more contained, as a result, than it was with the global financial crisis and the Great Recession that followed. 

Impact of COVID-19 on trust

In uncertain environments, trust in institutions—businesses, organizations, and governments—becomes even more critical for the continued function and stability of capital markets, and society. For Canadians, trust in governments, businesses, and media rose to record highs during the pandemic, according to a survey by global communications firm Edelman.³ Not surprisingly, the greatest gains in trust were for sectors on the front lines; however, the financial services sector ranked closely behind them in fourth place. While these results are encouraging, it can be said that trust is a more nuanced concept in financial services than in other industries because of the uncertainty of markets and the increasingly intangible concept of money. 

“When thinking about their investments, 47 percent of Canadians in the CFA survey indicated that their stress levels increased due to the COVID-19 pandemic.”⁴

In a recent CFA Institute member poll, 20 percent of respondents said that a loss of investor and public confidence in financial markets and the financial industry will be the biggest long-term impact of the pandemic and current market conditions.⁵ In that same report, more alarmingly, was a warning of the threat the pandemic poses for ethical lapses in the investment management industry. Globally, 45 percent of those surveyed felt that financial hardships in the financial industry are either likely or very likely to result in unethical actions on the part of its professionals. There were some regional differences in this answer, with the fear reported highest in North America, and the lowest in Latin America. 

The lasting effects of the COVID-19 crisis will be a moment of truth for the investment industry. Investment professionals and advisors will continue to be under increased pressure to make clients feel secure. 

Three keys to building and maintaining trust with clients during a pandemic

When it came down to who Canadian investors trusted most for their investment advice, almost half of those surveyed listed their primary financial advisor.⁶ While reassuring, the client-advisor relationship is still one that needs constant nurturing. 

“Over a third of Canadian investors surveyed indicated that their trust must be constantly earned and maintained over time.”  

Building and maintaining client relationships has likely been more challenging for many over the past year, as government-imposed lockdowns and quarantine measures have disrupted traditional interactions. There are still several key concepts for advisors to keep in mind when thinking about investor trust during a pandemic. 

1. Information is essential for trust: Advisors can earn a tremendous amount of equity and trust with their clients through open, transparent, and proactive communications. Surprisingly, a recent report by communications advisory firm VisibleThread found that 30 percent of asset management firms did not mention COVID-19 on their website, leaving their investors without easily accessible information about the impact of the pandemic on their funds.⁷ The less informed investors feel, the less they trust the financial system.
2. The premium for human advice is much higher in times of crisis: While CFA Institute found that innovation and technology generally play a role in enhancing trust, Canadian investors expressed a slight preference for the human touch, with just over a third saying they valued access to tech versus an advisor.⁸ Additionally, 81 percent of Canadian respondents said they would trust investment advice offered by humans. These findings were likely reinforced during the crisis, as advisors were the people that clients called during periods of heightened market volatility. Investors are more likely to trust working with someone who acts as a partner and who is both relatable and empathetic during periods of stress.
3. Advisors can build trust by bridging the information gap: There is a significant difference in trust levels among retail investors with an advisor and without an advisor. Investors in a trusted relationship with the firms and advisors acting on their behalf were much better equipped to navigate the market disruption. The role of an advisor in financial literacy may also be a factor. The Ontario Securities Commission survey published in August of this year found there were correlations between financial knowledge and selling behaviour. Individuals with lower levels of financial knowledge were much more likely to sell at this time, with 27 percent of investors with very low and 21 percent with low financial literacy having sold over 20 percent of their assets in response to the COVID-19 pandemic.⁹ 

The future of trust

Trust will be put under strain in the current market environment. To retain investor confidence in this uncertain climate, investment firms and professionals should focus on the enduring elements of trust by building and maintaining client relationships. Investment professionals who understand and take the time to nurture investor trust will better serve their clients and demonstrate how the investment industry can better serve society

1. CFA Institute, “CFA Institute Survey: Trust in Investment Management More Valuable Than Ever,” June 18, 2020.
2. CFA Institute Future of Finance, “Earning Investors’ Trust: Focus on Canada” [chart], 2020. 
3. Edelman, 2020 Edelman Trust Barometer Spring Update: Trust and the Coronavirus, May 5, 2020.
4. Ontario Securities Commission, Investor Experience Research Study, August 2020.
5. CFA Institute, Is the Coronavirus Rocking the Foundations of Capital Markets?, June 2020.
6. CFA Institute, Earning Investors’ Trust: How the Desire for Information, Innovation, and Influence is Shaping Client Relationships,
   June 2020.
7. VisibleThread, 2020 Asset Management Clarity Report, Sept. 8, 2020. 
8. CFA Institute, Earning Investors’ Trust: How the Desire for Information, Innovation, and Influence is Shaping Client Relationships,
   June 2020.
9. Ontario Securities Commission, Investor Experience Research Study, August 2020.