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Research

Standards and Professionalism Outrank Returns in Trust-Based Survey

Surveyed investors prefer advice from human interaction versus AI, whereas tech is preferred as strategy tool.

By Chris Butera

A new survey from the CFA Institute reveals how the investment industry can boost its credibility and earn the trust of its clients.

The 12-market survey of both institutional and retail investors, The Next Generation of Trust: A Global Survey on the State of Investor Trust, discovered retail investors were largely dissatisfied with their advisers. Of the 800-plus institutional investors surveyed, CFA Institute reported that they gain trust in an adviser who: 1) gives full disclosure of fees, 2)  acknowledges conflicts of interest, and 3) generates returns that outperform a benchmark.

However, less than half of the participants reported satisfactory adviser performance on any of these three things. The institutional investors are more satisfied with advisers than retail investors, by 10 percentage points.

“There’s a lot of possibilities,” Bob Stammers, director of investor engagement at the CFA Institute told CIO in respect as to why trust has gone up.“For one, the market is doing better. You’ve had 10 years since the financial crisis for people to get a little more confident about the market itself. The other is experience. If you think about years past there is not as much engagement with retail investors as there is today, so with experience comes more confidence.”

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“The whole advent of robo-advisers and now the ability for advice to be provided to the mass affluent and even in smaller accounts helps more people understand the investment management business and the markets itself,” Stammers added.

For more than 3,000 surveyed retail investors, trust is a key reason to hire an adviser as well as performance. The survey shows that although twice as many retail investors prioritized trust over performance in their hiring decisions, underperformance (57%) and lack of communication or responsiveness (51%) were the main reasons for terminating the relationship with their financial advisers.

When it comes to hiring an asset manager, 17% of retail investors marked the ability to achieve high returns as a priority. Top attributes among institutional investors for hiring asset managers are the trust that they will act in the client’s best interests as well as high performance (24%).  

As for technology, investors are much more likely to turn to humans for advice. Although combining machine learning and human interaction can help build trust, technology is still seen more of a tool for execution rather than a distributor of assistance. A staggering 72% of investors were more likely to trust human advice over robotic, with 48% deciding that technology will provide more for their strategy implementation than a human in three years. The survey also found that technological interest has increased since 2016 throughout every market and age group.

“One of the interesting parts of this study was not just about trust but how trust is changing,” said Stammers, who added that technology is a way that investment professionals can better communicate with their clients, especially millennials.

Protection against data hacks and breaches was another trust factor among investors, and although 40% of investors noted that the more mainstream use of tech has raised their trust in financial advisers, they were worried about their data’s vulnerability. In fact, 82% of institutional investors agreed that reliable security measures to defend their data is more important than performance and disclosures.

Lastly, standards and professionalism were a huge chunk of what drives trust for investors across the industry. When told their investment firm sticks to an industry-wide voluntary code of conduct, the trust of 64% of retail investors and 70% of institutional investors increases. Three-quarters of investors surveyed also expressed the importance that the firms they choose to do business with hire investment professionals from respected industry organizations.

“In the past…it was all about returns. Now, you’ve got people that are much more worried about ‘are my interests being taken care of? Is the person I’m giving my capital to really got my interests to heart?’,” said Stammers. “We call it the glue in the financial ecosystem but if you think about it, trust is the centerpiece of any social relationship.”

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Home > News > Newsmakers > Alaska Fund Reminds Lawmakers It’s Not a Piggy Bank
Newsmakers

Alaska Fund Reminds Lawmakers It’s Not a Piggy Bank

State House bill proposes to more than double the fund’s dividend in 2019.

By Michael Katz

The body overseeing Alaska’s $64.7 billion sovereign wealth fund has warned the state’s lawmakers that using the fund to boost budget shortfalls will put its long-term sustainability at risk.

The board of trustees of the Alaska Permanent Fund Corporation has issued a resolution calling on the state’s lawmakers to adhere to a rules-based system for overseeing transfers into and out of the fund.

In 1976, Alaska’s constitution was amended to establish the permanent fund, and stipulates that at least 25% of all mineral lease rentals, royalties, royalty sale proceeds, federal mineral revenue sharing payments, and bonuses received by the state must be deposited into the permanent fund. Every qualifying Alaska resident receives a dividend each year from the fund.

“The board of trustees acknowledges the fiscal challenges facing the state have resulted in multiple stakeholders proposing and analyzing new rules-based frameworks to change how fund transfers occur,” said the board in its resolution. “There should be clear and publicly disclosed policies, rules, procedures, or arrangements in relation to the fund’s general approach to funding, withdrawal, and spending operations on behalf of the government.”

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The trustees said that a rules-based system improves the likelihood that the fund will be sustainable over time, and that having a framework rationalized by policymakers regarding the rules for savings, withdrawals, and growing the funds value provides a consistent approach to transfers over the long term.

“This is a core element to ensuring sustainability,” said the trustees. “Conversely, the reliance on ad-hoc draws to support government spending would substantially increase the chance of a non-sustainable withdrawal in any one year, and the risk of nonformulaic draws compounding in an unsustainable manner over multiple years.”

However, the resolution, which was distributed to members of the state’s Senate and House of Representatives, hasn’t yet convinced lawmakers to leave the fund alone. Earlier this week, Alaska’s House of Representatives voted to raise the dividend payout to $2,700 next year as part of its annual state operating budget proposal. The dividend paid out varies from year to year, ranging from a low of $331.29 in 1984 to a high of $2,072.00 in 2015. Last year and in 2018, the payout was $1,100 per resident.

The House’s budget vote would pay dividends in line with the current formula, but would reportedly add $900 million to the amount of cash that the House would withdraw from the Permanent Fund to balance its budget this year.

 

 

 

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