Investors, advisors, managers, and trust

We all know that “trust” and “brand” are intertwined, but CFA Institute reminds us of this again with its latest survey, “Earning Investors’ Trust: How the Desire for Information, Innovation, and Influence Is Shaping Client Relationships,” its fourth study since 2013 on investor trust. 

Interviewing over 3,500 retail investors and almost 1,000 institutional investors, the study teases apart the elements of trust on all sides of the client/intermediary/provider relationship.

What we found noteworthy:

• The more informed clients are the more trusting they are, and while transparency is key to informing clients, their perceptions of investment manager transparency have decreased since 2018.  

• Re: trust, financial advisors are in the middle of the pack—“on a par with mechanics.” Doctors are trusted three times as much as advisors.

• Trust from institutional investors declined worldwide since 2018 (65% versus 72%). Only 25% of institutions believe investment firms put client interests first, unchanged from 2018.

• More institutional investors trust technology than don’t, while the reverse is true for retail investors:

  • Asked to choose between 1) an algorithmic fund employing data scientists and using alternative data and 2) a fundamental, bottom-up conviction equity portfolio, 71% of institutions chose 1) while just 29% chose 2).

  • Most institutions (71%) are eager to invest in funds employing artificial intelligence (AI), whereas only a third of retail investors are. 

  • We’ve long thought financial services are ripe for entry by big tech firms with strong brands. Sure enough, half of surveyed institutions would be more interested in a new product created by a tech firm (48%) than by a financial firm (52%).

• ESG is only getting stronger. “A significant shift is underway” in how investors think about outcomes. Most institutional investors (73%) and retail investors (67%) are willing to give up some return to meet a values-based objective. A little surprisingly, older investors are more likely than younger investors to prioritize values. 

• Brand “is a powerful signal of trust to retail investors, and appears to be getting stronger,” particularly for younger investors, 75% of whom would rather work with “a brand I can trust” than with “people I can count on.” 

  CFA Institute sees a connection between this and the preference of two thirds of institutional investors for a team approach versus a star manager. 

Its #1 recommendation? That investment managers and advisors “maintain a strong brand identity and follow through on brand promises.”