A study of retail and institutional investors shows they have mostly increased trust in financial services, with some wide swings and room for improvement.

A survey of individual and institutional investors across the world finds they are more trusting in financial services in certain countries since the 2008 crisis, with China seeing sharp rise while other nations continue to have problems. Institutions are also far more trusting of the financial industry than individuals in general.

The CFA Institute in late2017 sampled 3,127 retail investors aged 25 years or over and who hold at least $100,000. They were based in Canada, US, Brazil, UK, France, Germany, UAE, Australia, India, Singapore, China and Hong Kong. The survey also sampled 829 institutional investors with assets of $50 million or more in these markets.  

Overall, some 44 per cent of retail investors trust financial services; some 35 per cent have a neutral attitude and 21 per cent are mistrustful. Some 70 per cent of Chinese investors said trust had improved; some 47 per cent of those in Singapore said trust had gained, and 48 per cent and 51 per cent of US and Canadian investors, respectively, said trust went up. In the UK and France, the percentages seeing rises were 31 per cent and 40 per cent, respectively. In Germany, 24 per cent said trust had gone down, but in India the figure was far worse, with 71 per cent saying their trust had fallen. In Australia, 31 per cent said their trust had remained the same since 2008.

When different sectors of the global economy are analysed, the CFA study finds that when compared to 2016, we find that financial services and the auto industry increased their trust ranking, while telecommunications and entertainment fell in the rankings. Interestingly – and this is before the latest claims around Facebook’s use of client data – retail investors’ most trusted sector for this year was technology (64 per cent), followed by food and beverages (50 per cent) and law (47 per cent). Financial services ranked fourth, at 44 per cent. The media came bottom, at 26 per cent.

Institutions are far more trusting, giving technology an 85 per cent trust score, with financial services coming at 72 per cent. Within the financial subsectors, real estate managers got a trust ranking from institutions of 74 per cent; “mainstream asset managers” chalked up a 72 per cent score, followed by investment management firms at 70 per cent. Hedge funds came at the bottom, 59 per cent. 

The survey also looked at institutional and retail investors’ expectations of what they want and how satisfied they are on certain measures. Institutions put the ability to keep personal data secure as their top priority: 82 per cent of institutions said this was the most important factor; on this area, there was a satisfaction score of 74 per cent. With retail investors, the most important area was financial services’ disclosure of fees and costs, the same result as keeping data safe.

Advisor trust
The report also drilled down into how retail investors felt about their advisors. “Most retail investors feel that their advisors are accessible, transparent, and fair,” the report said. 

Some 83 per cent reported their advisors are accessible, although lower responses in Hong Kong and Singapore may be why they use alternative advice sources. Those whose advisors were more accessible were also more likely to trust the industry overall (54 per cent vs. 30 per cent trust levels).

“In terms of transparency, most retail investors said their advisor was very or somewhat transparent around fees, market events, and other items, though less than half thought their adviser was very transparent around conflicts of interest,” it said. 

Regarding fees, 72 per cent of retail investors thought the fees they paid were fair, 10 per cent thought they were unfair, and 18 per cent were unsure, the report added.

The study showed institutional and retail investors differ on the top reason for firing an investment advisor. The top reason (47 per cent) for retail investors sacking an advisor was poor performance; for institutions, their top reason (38 per cent) was a data/confidentiality breach.

In other differences between investor types, 51 per cent of retail investors said national and global politics would be a cause of the next financial crisis, while 39 per cent of institutions did so.