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Paul Smith, CFA Institute

Investors focused on transparency, ethics and performance, says CFA Institute survey

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Investors are expecting higher levels of transparency than ever before, holding their investment managers to the highest ethical standards, and are focused on returns, according to a new study from CFA Institute.

The survey, “From Trust to Loyalty: A Global Survey of What Investors Want”, a follow-up to the 2013 Edelman/CFA Institute Investor Trust Study, measures the opinions of both retail and institutional investors globally.
 
 The findings reveal that investors want regular, clear communications about fees and upfront conversations about conflicts of interest. The biggest gaps between investor expectations and what they receive relate to fees and performance. Clients want fees that are structured to align their interests, are well disclosed and fairly reflect the value they are getting from their investment firms.
 
“The bar for investment management professionals has never been higher,” says Paul Smith (pictured), CFA, president and CEO of CFA Institute. “Retail and institutional investors, as always, crave strong performance, however both groups also demand enhanced communication and guidance from their money managers. Building trust requires truly demonstrating your commitment to clients’ well-being, not empty performance promises or tick-the-box compliance exercises. Effectively doing so will help advance the investment management profession at a time when the public questions its worth and relevance.”
 
Since 2013, retail investors show a significant increase in trust of the financial services industry – rising from 50 per cent to 61 per cent. About half the gain is thanks to strong increases in the U.S., U.K. and Australia. The other half is due to higher absolute trust levels in markets not included in the 2013 study, notably China, India and Singapore.
 
Both retail and institutional investors share the view that financial professionals are falling short on issues of fees, transparency and performance. Among retail investors, the most important actions from an investment firm are that it “fully discloses fees and other costs” and “has reliable security measures.” These even surpass protecting their portfolio from losses. Among institutional investors, “acts in an ethical manner” rated as the most important attribute followed by “fully discloses fees and other costs.”
 
That’s not to say that performance is unimportant – 53 per cent of retail investors and 60 per cent of institutional investors cited “underperformance” as the biggest factor that would lead them to switch firms. This was followed by “increases in fees,” “data/confidentiality breach,” and “lack of communication/responsiveness.”
 
Forty-five per cent of institutional investors and 43 per cent of retail investors would leave an investment firm if data security were to be compromised, demonstrating the importance placed on cybersecurity in today’s markets.
 
The study found that once an issue has triggered an investor to re-evaluate their relationship with an investment manager, the majority – 76 per cent of retail investors and 74 per cent of institutional investors – are likely to leave within six months.
 
“While an increase in overall trust in the financial services industry is a net positive for financial professionals,” says Smith, “performance is no longer the only ‘deal breaker’ for investors. They are continuing to demand more clarity and service from financial professionals and, with the rise of robo-advisors, they have more alternatives than ever before. Further, if investment professionals don’t provide this clarity, then regulators may force them to, for better or worse.”
 

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