Practical analysis for investment professionals
17 July 2018

New Insights on the Trust Crisis in Finance

Ten years after the global financial crisis, many industry observers are looking back, assessing what transpired, and wondering what has truly changed in the financial services industry. Lasting damage occurred on many fronts, not the least of which was a serious erosion of trust.

But research shows that trust in the finance sector is on the rise around the globe, according to Robert Stammers, CFA, director of investor engagement for CFA Institute. Stammers shared these insights during a presentation and panel discussion on the new CFA Institute study, “The Next Generation of Trust,” at the Penn Club in New York.

The study emanated from a global survey of retail and institutional investors on the state of investor trust.

Stammers attributed the trend to increasing professionalism in the finance industry.

Raising trust remains an ongoing challenge, Stammers said, but a commitment to professionalism and regularly acting in clients’ best interests represents a proven pathway to higher trust levels.

Individual investors surveyed said that their trust in advisers is mainly driven by the following priorities: full disclosure of fees, disclosure and management of conflicts of interest, and generating returns better than a benchmark. The two most important attributes for institutions when hiring an asset manager are trust to act in the client’s best interest and ability to achieve high returns.

Stammers noted that while the use of technological tools continues to rise, increased trust cannot be achieved solely through sophisticated tech offerings. Yet technology can be an important component. Many investors said they rely on humans for advice but see technology as a complementary tool. Smart use of technology indeed increases trust when combined with a human touch.

Brand and credentials are crucial.

Brand is increasingly seen as a proxy for trust, and thus more investment management firms should be investing in their brands with a message beyond performance, the study found. Younger investors, particularly millennials, value brands more than baby boomers.

The Importance of Brand to Investors

Another major revelation from the study was just how highly clients value reputable credentials. About three quarters of retail and institutional investors say it is important that the firm they work with employs investment professionals with credentials from respected industry organizations — an indicator of trustworthiness.

Employ Professionals with Credentials from Respected Industry Organizations Chart

During the panel discussion that followed Stammers’s presentation, Gerri Walsh, president of the FINRA Investor Education Foundation, a self-described “recovering lawyer,” observed that firms often rely on lengthy and confusing disclosure documents to communicate with clients about their approach to doing business. Yet only a very small part of these disclosures are actually required by regulators, she said: Most of the verbiage comes from a firm’s lawyers in order to protect the firm, not the client.

Judy Brennan, managing director of reputation management at Ogilvy, said that while many financial services brands have been rehabilitated, others continue to lag and have a long road ahead to regain trust.

Trust may be on the rise in aggregate, she said, but some firms will still struggle until they successfully clean up their legacy issues.

This article is adapted from a post that originally appeared on the Financial Communications Society (FCS) website

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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.

About the Author(s)
Matthew Hickerson

Matthew Hickerson is director of executive communications at CFA Institute.

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