What do clients expect from advisers?

While investors in India value human advice, technology is becoming more important for them, finds a global CFA investor study.
By Ravi Samalad |  19-09-17 | 
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About the Author
Ravi Samalad is Assistant Manager - Editoral for Morningstar.in.

Value of human advice

Financial advisers remain the most trusted source of investment advice for *retail investors (according to global definition). In fact, 28% of institutional investors and 30% of retail investors said they would pay more for a firm that employs investment professionals with credentials from respected industry organizations, shows The CFA Institute Trust to Loyalty Survey 2016 which studies trust in the investment community and the evolving needs of investors.

The study covered 3,312 *retail investors from 10 countries including India, having investable assets of at least $100,000. In addition, around 502 institutional from 6 countries responsible for institution’s investable assets of $10 million or more participated in this survey.

Meanwhile, retail investors indicated that it is more important to have “people I can count on” than “a brand I can trust” by a two-to-one margin. Only China and India were exceptions to this. Traditionally, Indian investors have shown higher loyalty towards brands more than the employees. Since institutions, particularly banks, witness high relationship manager churn, investors might not have been able to build a good connect with people. This is where independent financial advisers can make a difference through their personalized services.

“This suggests that to investors an investment firm’s brand is only as good as its people, which is an important consideration for investment firms when investing in human capital,” states the CFA study.

Since the last study conducted in 2013, investors’ trust in the financial services industry to do what is right has generally increased in the 2016 survey. In the latest survey, investors have a slightly more favorable view of the industry (61% for retail investors and 57% for institutional investors) versus the general population (51%). However, financial services still remains in the bottom tier of trust relative to other industries.

The survey shows that retail investors in China and India had much higher absolute levels of trust (90% and 89% respectively) compared to investors in other markets. The survey attributed the higher level of trust due to the fact that relationships with investment managers are newer — only 22% in China and 22% in India have worked with their primary investment firm for seven or more years. This is relatively low when compared to retail investors in the U.S. (69%). Globally, 45% have worked with their primary investment firm for 7 or more years.

There are, however, some signs that this is changing, and technology may become even more important to investors. When retail investors were asked whether they expect to continue to value human interaction over technology over the next three years, most still preferred to have human guidance, particularly in Canada, the U.S. and Australia. The opposite is true in China and India though, where the majority value greater access to technology.

Retail investors expectations

For many investors, understanding fees – how much they are paying and what they are paying for –

ranks above returns in their priorities. Seventy-nine percent of retail investors said it was important to them that their investment firm clearly explain all fees before they were charged. “Providing this context concerning fees is critical for investment managers to deepen trust and articulate their value proposition,” recommends the study.

Retail investors are prepared to pay fees, even higher fees, if they feel these costs will add value or deepen existing services. The top benefits retail investors would be willing to pay more for are better protection from portfolio losses (38%) of retail investors would pay more and reliable security measures to protect their data (35%).

Investors also want more context to understand specific portfolio management strategies, reflecting their increasing desire to be engaged.

The top client service attribute retail investors want is that a firm “helps me understand why my portfolio is positioned the way it is.” This is expected by 70% of retail investors, but only 46% say investment firms are adequately delivering on this—a large gap that firms should close.

Why investors change investment managers 

Investors have mixed loyalties to their investment managers. When asked what would make them leave their current firm, the top response was underperformance (53% of retail investors and 60% of institutional investors). Other common triggers for a move include fee increases, a data or confidentiality breach, and lack of communication and responsiveness. Once they consider a move for any reason, 76% of retail investors and 74% of institutional investors will switch investment firms within six months.

Similarly, only 51% of retail investors and 41% of institutional investors would recommend their current firm, suggesting an underlying weakness in loyalty.

 Click here to access the full survey.

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