Practical analysis for investment professionals
22 June 2018

How Can Investment Professionals Build Trust?

Trust forms the basis for most social relationships and is especially foundational to those between clients and investment professionals.

Think about it: Clients entrust their capital to advisers to invest, often at the advisers’ discretion. The entire financial system is built on relationships in which those with an abundance of capital and a deficit of ideas furnish that capital to those with a deficit of capital but an abundance of ideas.

That requires an immense amount of trust. And when properly earned and thoughtfully applied, that trust pays off. It sets in motion successful ideas that benefit both the investor and society at large, creating greater social wealth and well-being. Trust is the glue that binds the financial system together and is essential if the investment industry is to benefit society.

But regulators have yet to construct a framework that ensures it, so it is up to financial professionals to earn it.

The question is: How? How can investment professionals develop that bond? What are the building blocks, the practical strategies, with which they can establish client relationships based on authentic trust?

Measuring Trust across the Globe

“The Next Generation of Trust” study of over 4,000 institutional and retail investors from around the world offers valuable insights into these questions.

The third in a series of global surveys from the Future of Finance team at CFA Insitute, “The Next Generation of Trust” gauges the faith investors have in the financial sector as well as what they expect from financial professionals and firms. It considers how trust is evolving, how the newest generations of investors may influence that evolution, and what qualities lead investors to hire, keep, and fire investment professionals and firms. The survey also examines the role technology plays in the industry and how it influences trust. Most importantly, “The Next Generation of Trust” provides actionable strategies that advisers can use to foster trust and demonstrate their value to clients.

Study Highlights

The good news is that with the global financial crisis 10 years behind us, trust in financial services is increasing: 44% of global investors say they have a high level of trust in the industry.

Another positive sign: Investors have increasing faith in the system. Nine out of 10 retail investors now believe they have a fair opportunity to profit from investing in the financial markets. However, there is a growing satisfaction gap. Transparency, particularly around fee disclosure and conflicts of interest, will need to improve if trust is to continue its upward trajectory.

Mind the Brand

The importance of brand identity as a proxy for trust showed a demonstrable increase among investors in the survey. Participants were asked,“When thinking about an investment firm to work with, which of the following is more important to you, a brand I can trust, or people I can count on?” Of global retail investors, 54% chose people over brand, down from 66% in 2016.

In fact, the importance of brand had increased in all markets, but especially in China and India, where 78% and 77% of investors, respectively, said it had grown. Investment firms need to understand what values their brand projects, how their brand is perceived in the marketplace, and what their stakeholders and community, especially in certain Asian markets, want.

Trusting Tech?

Questions about technology in investing and how technology influences trust also provided compelling results.

Investors were asked, “In three years, which of the following do you think will be more important to you, having access to the latest technology platforms and tools to execute my investment strategy, or having a person to help navigate what is best for me and execute on my investment strategy?”

Of global retail investors, 52% chose people over tech, down from 62% in 2016. The importance of technology platforms relative to people increased in all markets, and was especially critical for 86% of investors in India and 73% in China.

Building Blocks of Trust: Credibility and Professionalism

The most practical aspects of trust relate back to the Trust Equation, which was first introduced in the Future State of the Investment Profession study.

Simply put, to prove their value and increase investor trust, firms and finance pros need to build credibility and demonstrate professionalism.


The Next Generation of Trust

 


Credibility is more straightforward and easier to assess than professionalism. It comes down to track record and experience. Credibility gives investors confidence that the investment adviser or firm is professionally accredited and capable of successfully supplying the required service. Reputation, brand, and credentials all contribute to credibility.

Professionalism is more subjective and harder to assess. How do investment professionals assure clients of their financial aptitude and that their values align? They must prove their competence and subject matter knowledge, of course. That’s the easy part. The harder part is showing empathy, a fiduciary mindset, and ethical decision making — that they put the clients’ interests first.

“The Next Generation of Trust” presents eight specific action items based on the survey data to help finance professionals both develop and present credibility and professionalism:

Credibility

  1. Maintain strong brand identity and follow through on brand promises.
  2. Employ professionals with credentials from respected industry organizations.
  3. Stay focused on building a long-term track record to demonstrate competence.
  4. Adopt a code of conduct to reinforce your firm’s commitment to ethics.

Professionalism

  1. Improve transparency and clarity regarding fees, security, and conflicts of interest.
  2. Use clear language to demonstrate that client interests come first.
  3. Showcase your ongoing professional development to improve investment knowledge.
  4. Demonstrate your dedication to the values that clients hold dear.

Assessing Ethical Commitment

Much more granular and market-specific insights can be found on “The Next Generation of Trust” website.

Additional resources are also available for finance professionals and investors alike, including the “Statement of Investor Rights.” This document outlines 10 rights that investors should expect and financial professionals should deliver. “Realize Your Rights” complements the “Statement of Investor Rights” with a practical guide for implementing and applying its prescriptions.

“The Next Generation of Trust” helps accomplish that, and can be a critical tool for investment professionals to develop that bond and build an investment industry that always puts investors first.

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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.

Image credit: ©Getty Images/uzenzen

About the Author(s)
Robert Stammers, CFA

Robert Stammers, CFA, is director of Investor Engagement for CFA Institute and is responsible for increasing the use and distribution of Future of Finance and CFA Institute content by various audiences. Prior to joining CFA Institute, Stammers was the principal for his founded company where he consulted for real estate owners, lenders, and syndicators to develop and analyze structured real estate investments. There he devised strategy for obtaining debt and preferred equity capital and created finance-related marketing materials and research papers for various clients. Stammers has authored over 100 articles on various financial and investment topics for such investment periodicals as Forbes and Investopedia. He served as a senior equity analyst, where he was responsible for the creation of new investment tools and instructional products to provide the revenues for two new investment education companies. As a senior executive for several institutional fund managers, Stammers was the portfolio manager for a $1 billion enhanced real estate fund, a $1.2 billion private timber fund, and several pension fund separate accounts.

1 thought on “How Can Investment Professionals Build Trust?”

  1. I’ve spent 25 years in PWM. Seeds of cultural change are best rooted in fertile foundations of character. 2018 Edleman Trust Barometer says 54% trust in financial services. As true for society at-large, no quantity of incentives, rules, and oversight will supersede a man’s authentic desire and ability to put clients’ interests first!

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