Investment firms aren’t living up to the high expectations of either institutional or retail clients, according to a new CFA Institute survey.
The survey of 502 institutional and 3,300 retail investors in up to 10 jurisdictions found investment firms are “falling short” of requirements, particularly around fees, transparency and performance.
Retail investors reported about a 30 per cent gap between the seven factors they rated as most important and how well investment firms delivered in those areas.
For example, while 80 per cent of retail investors surveyed said full disclosure of fees and all costs was important only 49 per cent felt investment firms actually met that standard.
However, the majority (53 per cent) of retail respondents rated underperformance as the main reason they would leave their investment provider, followed by fee increases (46 per cent) and data/confidentiality breaches (43 per cent).
While institutional investors rated the same three factors as the top reasons for sacking an investment firm, those respondents were even less tolerant of failure than their retail counterparts, according to the CFA report, titled ‘From trust to loyalty: a global survey of what investors want’.
The survey found 60 per cent of institutional investors would dump an investment firm for underperformance with fee increases (50 per cent) and data/confidentiality breaches (45 per cent) also rating strongly as firing offences.
Of the factors institutional investors said were important attributes of an investment firm, the CFA study also found a large gap between the ideal and reality.
For example, while 67 per cent of institutional respondents said alignment of fees with their interests was important, only 40 per cent felt investment firms delivered on the promise.
The study notes a similar disparity in nine other factors including disclosure, keeping fees low, ethical behaviour, regulatory breaches, and the ability to provide investment insight beyond specific mandate parameters.
Despite the often-large gaps between expectations and reality the CFA study found overall trust levels in the investment industry had increased compared to its last survey.
“Since 2013, retail investors showed a significant increase in trust of the financial services industry, rising from 50 per cent to 61 per cent,” the CFA report says. “About half the gain is thanks to strong increases in Australia, the US and the UK. The other half was due to higher absolute trust levels in markets not included in the 2013 Study, notably China, India and Singapore.”
In a statement, Dr Jeff Stangl, CFA Society NZ president, said the survey results showed investment firms needed to develop a comprehensive understanding of client needs rather than offering “empty performance promises or tick-the-box compliance exercises”.
“While an increase in overall trust in the financial services industry is a net positive for financial professionals, performance is no longer the only ‘deal breaker’ for investors,” Stangl said. “They are continuing to demand more clarity and service from financial professionals and, with the rise of robo-advisors, they have more alternatives than ever before. Further, if investment professionals don’t provide this clarity, the regulators may force them to, for better or worse.”