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April 4, 2018

CFA Institute: universal disclosure of fees improves investor trust

A survey commissioned by the CFA Institute found that 84% of investors say that trust in their advisors is mostly due to full disclosure of fees, yet only 48% were satisfied with their advisors disclosure.

The survey, The Next Generation of Trust: A Global Survey on the State of Investor Trust, found a significant gap between what retail investors expect from their financial advisers and how satisfied they are with the relationship.

Investors surveyed said their trust in advisers is prioritised by disclosure and management of conflicts of interest (80%) and generating returns better than a benchmark (78%), yet respectively only 43%, and 44% of participants said advisers meet their expectations on these.

The survey found institutional investors considered the factors to be most important were similar to retail investors. However, the gap between institutional investors’ expectations of and satisfaction with those priorities was much narrower, with less than a 10% shortfall.

The other key findings from the survey were:

  • Underperformance (57%) and lack of communication or responsiveness (51%) are the main reasons retail investors leave a financial advisor.
  • 72% of investors said they are more likely to trust advice from a human adviser over a robo-adviser. However, 48% said that in three years it will be more important for them to have technological tools to execute their own strategy rather than a person.
  • 40% of investors said that the increased use of technology has increased their trust in their financial advisers yet remain nervous about how vulnerable their data may be to security breaches.
  • 82% of institutional investors said having reliable security measures to protect their data is more important than performance and disclosures. 
  • About three-quarters of investors said it is important that the firm they work with employs investment professionals with credentials from respected industry organisations.

CFA Institute head of the Future of Finance initiative Rebecca Fender commented: “Trust hinges on professionalism. Advisers need to demonstrate a strong commitment to ethics, expertise, and transparency to win their clients, and create real value for the fees they charge.”

Survey methodology

In collaboration with CFA Institute, Greenwich Associates gathered responses from 3,127 retail investors and 829 institutional investors from Australia, Brazil, Canada, China, France, Germany, Hong Kong, India, Singapore, United Arab Emirates, United Kingdom and United States.

The survey was conducted in November and December 2017.

Retail investors surveyed were 25 years or older with investible assets of at least $100,000.

Institutional investors surveyed were those responsible for investment decisions at entities with at least $50 million in assets under management, from public and private pension funds, endowments and foundations, insurance companies and sovereign wealth funds.

The margin of error for retail investors is +/- 1.9%; the margin of error for institutional investors is +/- 2.1%.

By Joe Pickard

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