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March 26, 2018 at 01:55 PM
A big gap exists between what retail investors expect from their financial advisors and how satisfied they are with the relationship, according to a study released Monday by the CFA Institute.
Eight-four percent of retail investors said full disclosure of fees was key to their trust in advisors, while only 48% said advisors delivered on this priority.
Likewise, 80% of respondents said disclosure and management of conflicts of interest, and 78% said generating returns that outperformed a benchmark were their top expectations, but only 43% and 44%, respectively, were satisfied with advisors on these priorities.
Institutional investors in the study had similar expectations of their advisors, but were more satisfied that their priorities were being met.
Institutional respondents ranked the factors they considered most important similarly to retail investors. However, the survey turned up a less than 10 percentage-point gap between their expectations of and satisfaction with those priorities.
“We are pleased that investor trust has increased since 2016,” Paul Smith, CFA Institute’s president and chief executive said in a statement. “We attribute this to rising levels of professionalism in our industry.”
Smith noted, however, that “there is work still to be done. We need universal disclosure of fees and performance to drive home this message.”
Greenwich Associates, working with CFA Institute, polled 3,127 retail investors and 829 institutional investors in the U.S. and 11 other countries in November and December. Retail investors surveyed were 25 or older with investable assets of at least $100,000, while institutional investors were those responsible for investment decisions at entities with at least $50 million in assets under management.
The survey found that twice as many retail investors reported that trust in an advisor strongly influenced their hiring decision, but performance had to live up to their expectations if they were to remain in the relationship.
Fifty-seven percent said they would exit a relationship for underperformance, and 51% said they would do so for lack of communication or responsiveness.
Institutional investors ranked the ability to achieve high returns much higher than retail investors when choosing to hire an asset manager, and on a par with trust to act in the client’s best interest.
