Financial advisors are still failing to meet the expectations retail investors have about transparency and performance, according to a survey conducted on behalf of the CFA Institute, a global association of investment professionals.
The survey reveals a significant gap between what investors expect from their financial advisors and how satisfied they are with the relationship.
Specifically, investors say their trust in advisors is driven by priorities of full fee disclosure (84%), disclosure and management of conflicts of interest (80%), and generating returns better than a benchmark (78%). Yet, in terms of performance, only 48%, 43% and 44%, respectively, of participants say that advisors are doing a good job in these areas.
“We are pleased that investor trust has increased since 2016. We attribute this to rising levels of professionalism in our industry,” says Paul Smith, president and CEO of CFA Institute, in a statement.
“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. We need universal disclosure of fees and performance to drive home this message.”
Furthermore, approximately two-thirds of retail investors (64%) say it increases their trust when told their investment firm adheres to a voluntary code of conduct for the industry. Additionally, three-quarters of investors say it’s important that the firm they work with uses investment professionals with credentials from respected industry organizations.
Surprisingly, millennials have more trust in financial services than baby boomers (55% vs 40%).
This raises the question as to whether trust is eroded over time, and if the industry can find ways to maintain or even increase trust levels throughout an investor relationship, the report says.
“These findings provide a roadmap for how our industry can increase its credibility and address investor concerns,” says Rebecca Fender, head of the future of finance initiative at CFA Institute, in a statement.
“Trust hinges on professionalism,” she adds. “Advisors need to demonstrate a strong commitment to ethics, expertise and transparency to win their clients and create real value for the fees they charge.”
The study surveyed 3,127 retail investors over the age of 25 with investment assets of at least US$100,000 in the United States, Canada, Brazil, United Kingdom, France, Germany, United Arab Emirates, Australia, India, Singapore, China and Hong Kong. The survey was fielded in Nov. and Dec. 2017.