What Investors Want

To succeed in investment management, firms need two things: good (enough) returns and clients. Of course, the two are very much related.

What makes this challenging for the industry is that proving skill rather than luck takes a longer time series than most investors’ time horizons. And given the uncertainty of markets, there can be no guarantees.

What’s interesting and encouraging, however, is that performance is not the only thing that matters to clients. A recently released CFA Institute study, “From Trust to Loyalty: A Global Survey of What Investors Want,” outlines the factors that are most important to clients when working with an investment firm.

In total, the study surveyed 3,312 retail investors and 502 institutional investors in North America, Europe, Asia, and Australia to see what really matters to them and where they think the industry is falling short.

As it turns out, what retail investors most want in an investment firm is one that:

• Fully discloses fees and other costs (80%).
• Has reliable security measures to protect my data (79%).
• Clearly explains all fees and costs before they are charged (79%).
• Generates returns similar to or better than other firms (73%).

Slightly further down the list were two other traits:

• Is forthright about disclosing and managing conflicts of interest (72%).
• Provides investment reports that are easy for me to understand (72%).

Given the margin of error of ± 1.7%, the precise rankings are not entirely clear, but the top three items stand apart — and they aren’t actually about performance.

Indeed, two are related to the “performance equation,” as fees reduce net returns. In fact, fees are the part of the equation that are most guaranteed. Investor demand for lower priced exchange-traded funds (ETFs) has led firms like BlackRock, Charles Schwab, and Vanguard to reduce their fees.

Elsewhere in the survey, when participants were asked why a client would leave their investment manager, underperformance was the top answer and an increase in fees was second for both retail and institutional investors.

With the results of this survey in mind, we asked CFA Institute Financial NewsBrief readers — a financially savvy group — what they expected the answers to be.

CFA Institute recently surveyed retail investors globally to ask them how they rank the importance of different attributes of investment firms. Which do you think was the top answer?

Among the 662 respondents, fees and performance ranked highest, with both earning 31% of the vote. Surprisingly, the item participants least expected that clients would choose was data security (7%), which actually ranked second among the investors queried in “From Trust to Loyalty.” Clearly, data breaches across industries — from health care to retail — have shaken consumer confidence in financial services as well. This is understandable: Today our financial lives are almost entirely digital, so the stakes are high.

Our poll respondents also recognized the importance of clear communication, with 20% expecting that providing easy-to-understand reports would be the top demand. Meanwhile, despite ongoing regulatory debates about the nature of investment advice and conflicts of interest, only about 11% of participants ranked this as the top priority for clients.

Among institutional investors surveyed in “From Trust to Loyalty,” the top items desired also included fee disclosure, data security, and performance, though others in the top five were “acts in an ethical manner in all our interactions” and “has adopted a recognized code of conduct for the industry.” This is good news for CFA charterholders, who annually affirm the CFA Institute Code of Ethics and Standards of Professional Conduct, and asset managers who have adopted the Asset Manager Code of Professional Conduct.

Overall, it seems our readers have a relatively good sense of the needs of their clients. Perhaps the most compelling information may be where clients see the biggest gaps between what they want and what they get. Furthermore, there are some qualities and services they indicate they would even pay more for.

These additional findings are available in the report and are intended to give investment professionals a clear idea of how they can strengthen client relationships over the long run.

“From Trust to Loyalty” was conducted as part of the Future of Finance initiative, an effort by CFA Institute to shape a trustworthy, forward-thinking financial industry that better serves society.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.