Clients lack faith in investment firms

Although the report’s findings are sobering, it’s not all doom and gloom, notes Julie Littlechild, CEO of Advisor Impact Inc. in Toronto. Clients may not have a great deal of faith in investment firms to do the right thing, but they place a lot more faith in their financial advisors to do what’s right for them.

“It wasn’t surprising to me that trust in the industry was quite low,” Littlechild says. “What wasn’t brought out here is the fact that investors actually feel a great deal of trust in the individual advisors they have. They simply have been distracted at an industry level.”

Advisor Impact produced a national survey of clients for the Investment Industry Association of Canada this year that measured their overall level of satisfaction with their investment advisors on a scale of one to 10. Advisors scored high: 86% of respondents rated their satisfaction at seven or higher and 72% rated it at eight or higher.

“One of the questions we had asked in our study was, ‘the importance of knowing my advisor puts the needs of me and my family first’,” Littlechild says. “We found that 90% of clients said it was important and 85% gave a high satisfaction rating on that.”

Similarly, the CFA/Edelman study found that trusting an investment manager to act in their best interest is, for clients, the single most important factor in making a hiring decision.

Achieving high returns was cited only half as often and fee amounts/structure only a fifth as much.

Clients also said that behaviour-related attributes, such as transparent and open business practices, responsible actions to address an issue or crisis and ethical business practices are more important to building trust than performance-related attributes such as delivering consistent financial returns and offering high-quality products or services.

“[Advisors] also need to think about the fundamental service,” Littlechild says. “Are you delivering on your promises? That to me is also about trust. It’s not just about transparency, it’s about the relationship as a whole.”

The CFA/Edelman study also found that although investors lack trust in the investment industry to act in clients’ best interests, they remain upbeat about capital markets in general.

Almost three out of four clients said they are optimistic about their ability to earn a fair return in capital markets. It’s hardly a strongly held belief, however. Just 19% of investors “strongly agree” that they have a fair opportunity.

Slightly more than half (55%) of clients said that investment managers they work with have been the most effective in enhancing their trust in the capital markets, scoring them ahead of investment firms (41%), national regulators (38%) or global regulators (35%).

Fifty-two percent of those surveyed said national and global regulators have the greatest opportunity to effect change and enhance trust, far more than individual investment-management professionals (28%) and investment-management firms (13%).

Although clients’ trust in investment players remains shaken, advisors can play a key role keeping clients on track in good times and bad.

Littlechild notes that the strength of a client/advisor relationship faces its greatest test in times of market turmoil.

“What we have found is that when clients are truly engaged, the swings of the market simply have less impact on the relationship,” she says. “They trust the advice and recognize that they need the advice more during those periods and recognize that.

“[As for] clients who are working with an advisor entirely based on returns,” Littlechild adds, “their trust will be dented because they may have been placing their trust in the market, not their advisor.”

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