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Most institutional investors won’t recommend their manager

Dan Purves




Fifty-nine per cent of institutional investors globally would not recommend their investment manager, according to research carried out for the CFA Institute.

The survey From Trust to Loyalty: A Global Survey of What Investors Want follows the 2013 Edelman/CFA Institute Investor Trust Study (2013 Study), and measured the opinions of 502 institutional investors and 3312 retail investors globally.

It revealed two big gaps between institutional investors and fund managers.

The first was that while 65 per cent of investors consider it important that a manager “takes time to understand my organisation’s priorities, liability structure, and political dynamics with different stakeholders”, only 42 per cent said the industry was delivering this.

Secondly, 62 per cent said it was important that a manager “acts as a partner in problem solving and goes beyond a specific mandate to lend insight on our investment concerns”, and yet only 39 per cent were satisfied.

The institutional investors considered ethical standards and full disclosure of fees to be the most important attribute in their fund managers, outranking even performance.

When institutional investors were asked what were the most important attributes when it comes to working with an investment firm, “acts in an ethical manner in all our interactions” and “fully discloses fees and other costs” jointly ranked the highest, “has reliable security measures to protect my data” came in third, while “generates returns similar to or better than a target benchmark” came in fourth.

When retail investors were asked the same they ranked “fully discloses fees and other costs” as the most important attribute, followed by “has reliable security measures to protect my data”, then “clearly explains all fees and costs before they are charged”, with “generates returns similar to or better than other firms” again coming in fourth.

President and chief executive of the CFA, Paul Smith, said in his executive summary while the survey showed trust levels among investors have risen since 2013, it was “not all good news”.

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    “With higher trust comes higher expectations, and the gap between what investors want and what we as a profession are delivering is cause for concern, and action,” Smith said.

    “Investors want advisers they can trust who have their best interests at heart. They expect greater transparency and communication, especially during periods of market volatility. Increased levels of care are particularly acute during downturns. And, in this digital age, a lack of reliable security measures to protect their data can be cause to find another adviser.”

    Anthony Serhan, president of CFA Society Sydney, added that the bar for investment management professionals had never been higher with institutional investors, as always, wanting strong performance, but also demanding enhanced communication and guidance from their money managers.

    “Building trust requires demonstrating commitment to clients’ well-being, not empty performance promises or tick-the-box compliance exercises. Effectively doing so will help advance the investment management profession at a time when the public questions its worth and relevance,” Serhan said.

    Sixty per cent 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 when investors started to consider moving managers, for any reason, 74 per cent switched within six months.

    Serhan added: “Investor demands have become significantly more dynamic. Along with delivering performance, investment professionals must also provide transparency around fees and investment decisions, align their interests with those of their clients and provide robust data security measures. Investment firms that do strike this balance will engender greater trust among investors which, in turn, will drive growth.”


    Other findings

    Almost one-third (29 per cent) of institutional investors believe there will be another financial crisis in the next three years. In addition, only half of these (49 per cent) believe their firms were “very well prepared” or “well prepared” to manage their portfolio through a crisis.

    Concerning advice over the next three years, the majority of retail investors in Canada (81 per cent), the US (73 per cent) and the UK (69 per cent) say they will still value the guidance of an investment professional to help them versus having the latest technology and tools.

    However, the majority of retail investors in India (64 per cent) and China (55 per cent) and half of investors in Singapore believe having access to the latest tech platforms and tools will be most important to executing their investment strategy. Sixty-eight per cent of retail investors in India and 56 per cent in China consider brand to be more important than people when it comes to trust.