For Retail Investment Firms, Focus Again Turns to Trust

What is the level of trust in retail investment firms?

Matthew Hickerson writes in the CFA Institute’s Enterprising Investor: “Ten years after the global financial crisis, many industry observers are looking back, assessing what transpired, and wondering what has truly changed in the financial services industry. Lasting damage occurred on many fronts, not the least of which was a serious erosion of trust.”

To assess the question, the CFA Institute issued a global survey and report titled “The Next Generation of Trust” (download the full report here).

It states: “Investors have a strong level of trust in the financial system overall, and trust in the industry has increased slightly. Nonetheless, challenges remain. Investor expectations are high and there are gaps between what investors want and what the industry delivers.”

The report highlights:

  • “Trust in Financial Services Industry: Reputation versus Realities: While investor trust overall in financial services is only slightly higher, there are many positive signs regarding actual client experiences. Reputational issues for the industry remain, but there are ways investment professionals are effectively building and maintaining trust with clients.”
  • “The Bottom Line Value of Trust through the Client Life Cycle: Among the key takeaways from the survey, we found that clients consistently rank trust as the biggest differentiator in hiring an investment firm. Trust also contributes to whether a client will refer others or expand the relationship with additional mandates. Underperformance is the primary reason clients leave an adviser; understanding client goals and fears are ways to build trust and weather uncertainty.”
  • “Technology Enhances Investor Trust but Does Not Replace the Need for Humans: Investors of all ages and from all regions want more technology applied to investing, and trust in technology is generally high. The effective use of technology increases trust in a financial adviser or firm, and new blockchain technology holds the promise of creating more trust in the system. For advice, however, clients still place greater trust in human advisers while robo-advisers are the least trusted segment of the industry.”
  • “The Trust Equation: Credibility and Professionalism: Credibility is composed of easily observed and highly valued factors such as track record, brand, credentials, and adherence to a code of conduct. Professionalism is more difficult to assess but is essential to trust. Professional competency, knowledge, and values are the key factors informing the perception of professionalism.”

CFA Institute offers useful infographics focused on Credibility and Professionalism:

Trust in retail investment firms

 

 

Trust in retail investment firms