Eugene Grygo, Chief Content Editor, FTF News
Investors want to close the gap between their expectations and what they receive in fees and performance from their investment managers or they will walk.
This is according to a new study about investors and their increasing demands upon investment management firms. Along with optimal performance, they want firms to provide “regular, clear communications about fees and upfront conversations about conflicts of interest,” according to a study from the CFA Institute, an industry group for investment professionals.
While performance issues and measurement methods are prominent for investors, they want “higher levels of transparency than ever before, holding their investment managers to the highest ethical standards, and are laser-focused on returns,” according to the retail and institutional investors that responded to the survey. The findings are in the report “From Trust to Loyalty: A Global Survey of What Investors Want.”
The study was produced by research firm Edelman Berland and is based on the results of a 15-minute, online survey conducted between October 19 and November 11, 2015, CFA officials say. This latest set of findings is a follow-up to the 2013 Edelman/CFA Institute Investor Trust Study.
“The biggest gaps between investor expectations and what they receive relate to fees and performance,” according to the new report. “Clients want fees that are structured to align their interests, are well disclosed and fairly reflect the value they are getting from their investment firms.”
Some of the other key findings from the study are:
- Trust is on the rise but investors “remain concerned about ethics, transparency and performance;”
- Institutional investors say that financial professionals are “falling short on issues of fees, transparency and performance … Among institutional investors, ‘acts in an ethical manner’ rated as the most important attribute followed by ‘fully discloses fees and other costs;’ ”
- Performance is still very important as “53 percent of retail investors and 60 percent of institutional investors cited ‘underperformance’ as the biggest factor that would lead them to switch firms. This was followed by ‘increases in fees,’ ‘data/confidentiality breach,’ and ‘lack of communication/responsiveness; ’ ”
- And cybersecurity is a pain point: “45 percent of institutional investors … would leave an investment firm if data security were to be compromised, demonstrating the importance placed on cybersecurity in today’s markets.”
Overall, investment management firms should address investors’ concerns soon and completely, or risk losing them as their patience is very low. “The study found that once an issue has triggered an investor to re-evaluate their relationship with an investment manager, the majority — 76 percent of retail investors and 74 percent of institutional investors — are likely to leave within six months,” according to the survey.
“While an increase in overall trust in the financial services industry is a net positive for financial professionals, performance is no longer the only ‘deal breaker’ for investors,” says Paul Smith, CFA, president and CEO of CFA Institute, about the survey results. “They are continuing to demand more clarity and service from financial professionals and, with the rise of robo-advisors, they have more alternatives than ever before. Further, if investment professionals don’t provide this clarity, then regulators may force them to, for better or worse.”
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