The level of trust between investors and their financial advisers is becoming more crucial in markets faced by uncertainty brought on by the Covid-19 pandemic and geopolitical factors.
“If you, as an individual adviser, and the organization you work for can guide your clients and give them transparency and honesty in terms of how their portfolios are performing then that will enhance trust,” says Nick Pollard, CFA Institute's managing director, Asia.
However, if your firm doesn’t have the reputation for either providing those services or doesn’t have people working within it who are sufficiently qualified, it’s difficult to build that trust, he adds.
The issue of trust between investors and their financial advisers was taken up by the CFA Institute, a global organization representing chartered financial analysts, which published on June 17 the 4th edition of its Trust Report, “Earning Investors’ Trust: How the Desire for Information, Innovation, and Influence is Shaping Client Relationships”.
The report studied 3,500 retail and 900 institutional investors in 15 markets around the world, including those of Australia, China, Hong Kong, India, Japan, and Singapore in the Asia-Pacific (APAC) region. About 27% of the retail investors and 34% of the institutional investors studied were from APAC.
Although the report, conducted from October to November, pre-dates the pandemic, the findings are a good gauge of how the level of trust between investors and financial advisers evolved between 2018 and 2019.
“The loss of investor and public confidence in financial markets and the financial industry will be the biggest long-term impact brought about by the pandemic, Pollard points out, adding that winning back that confidence, especially from investors, has never been so important.
In APAC, overall, the level of trust has stayed the same from 2018 to 2019 with 49% of the respondents surveyed saying they trust their financial advisers. APAC-based retail investors, the report notes, place more importance on using technology when making investments versus their global counterparts, and they are also the most confident when it comes to receiving payout benefits promised by their trust pension.
In Hong Kong, the level of investor trust in their financial advisers rose 17%, from 45% in 2018 to 62% in 2019. This significant increase is attributed to increased market transparency, clearer regulations in terms of managing technology risks, and the greater use of technology in the territory over the period.
India posted a year-on-year (y-o-y) 16% increase in the level of trust, which rose to 87% in 2019. This increase, according to the report, is due to the fact that the industry in India is relatively young and has a young demography of investors, and there is a sense of optimism in the country’s economic prospects.
The level of trust in China was largely stable, posting a y-o-y drop of 1% to 69% in 2019 .
Singapore, by contrast, suffered a massive y-o-y drop of 11% to 36% in 2019. The report ascribes the drop in the level of trust in Singapore to negative interest rates and a fair amount of negative publicity around the Central Provident Fund, the city-state's public compulsory pension scheme.
The level of trust also dropped in Australia, 7% y-o-y, largely because of negative publicity around the financial services industry.