Wealth Advisors Fall Short Of Clients' Transparency, Performance Goals

Tom Burroughes

26 March 2018

Wealth advisors don’t fully deliver what investors expect when it comes to being transparent and how money performs, highlighting the need for this industry to raise its game and educate clients, a global study of 3,127 people around the world shows.

The CFA Institute found that investors’ trust in advisors is driven by priorities of full disclosure of fees , disclosure and management of conflicts of interest , and generating returns better than a benchmark , yet respectively, only 48 per cent, 43 per cent, and 44 per cent of participants say that advisors deliver satisfactorily on these.

The study’s results come from The Next Generation of Trust: A Global Survey on the State of Investor Trust. As well as polled over 3,000 retail clients, the CFA also took views from more than 800 institutional investors. The report found that among these clients, there wasn’t so much of a gap between clients’ demands and advisors’ results.

Among the results’ details, the study showed that while twice as many retail investors place an emphasis on trust over performance in their decisions to hire financial advisers, the survey found that underperformance and lack of communication or responsiveness are the reasons they leave a relationship.

Among institutional investors, the two most important attributes when hiring an asset manager are trust to act in the client’s best interest and ability to achieve high returns. This group ranks ability to achieve high returns much higher than retail investors do when choosing to hire an asset manager.

Robos and humans
While 72 per cent of investors say they are more likely to trust advice from a human advisor over a robo-advisor, 48 per cent say that in three years it will be more important for them to have technological tools to execute their own strategy rather than a person. Also notable is that interest in technology has increased since 2016 in every market surveyed and among every age group.

Some 40 per cent of investors said the increased use of technology has also increased their trust in their financial advisors. However, they are nervous about how vulnerable their data may be to security breaches. For institutional investors, it is the most important factor in building trust with an investment firm: 82 per cent say that having reliable security measures to protect their data is even more important than performance and disclosures.

About two-thirds of retail investors and institutional investors say it increases their trust when told their investment firm adheres to a voluntary code of conduct for the industry.

“These findings provide a roadmap for how our industry can increase its credibility and address investor concerns,” Rebecca Fender, CFA, head of the Future of Finance initiative at CFA Institute, said.

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, UK and US. The survey was fielded 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.