Bad performance no longer the only deal breaker, CFAs find

TrustPerformance is no longer the only driver for investors in their choice of fund manager, with ethical behaviour and basic honesty playing greater roles.

Research among 3,312 retail investors and 502 institutional investors from a number of different countries across the world found that trust in financial services firms has increased – but investors also demand higher levels of transparency than ever before.

The CFA Institute, a professional body, found that retail and institutional investors want regular, clear communication about fees and upfront conversations about conflicts of interest.

Fees represent one of the biggest gaps between investors’ expectations and reality. Clients want fees that are aligned with their interests, are well disclosed and fairly reflect the value they are getting from their investment firms.

However, performance is still crucially important for investors, with 56% of them citing underperformance as the biggest factor that would lead to switching firms.

Other key findings of the CFA Institute’s report – ‘From Trust to Loyalty: A Global Survey of What Investors Want’ – include:

  • Investors increasingly value data security, with 44% saying they would leave an investment firm if their data security was compromised.
  • Once an investor is given cause to revaluate their relationship with an investment manager, the vast majority (76% retail, 74% institutional) will leave within six months.
  • Around a third feel another financial crisis is likely within the next three years, with this figure rising significantly in India (59%) and France (46%).
  • Only 50% believe their investment firms are “very well prepared” or “well prepared” to manage their portfolio in the event of a crisis.

Paul Smith, president of the CFA Institute, says: ““Along with delivering performance, investment professionals must also provide transparency around fees and investment decisions, align their interests with their clients’, and provide robust data security measures. Those investment firms that do strike this balance will engender greater trust among investors which, in turn, will drive growth.”

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