CFA Institute & Edelman Investor Trust Study
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CFA Institute & Edelman Investor Trust Study

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The study examines the dimensions that shape perceptions of trust in investment managers, as well as the actions that help build trust. It encompasses the opinions of institutional and retail ...

The study examines the dimensions that shape perceptions of trust in investment managers, as well as the actions that help build trust. It encompasses the opinions of institutional and retail investors in the United States, United Kingdom, Hong Kong, Canada and Australia on the state of trust in the investment management community.

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CFA Institute & Edelman Investor Trust Study CFA Institute & Edelman Investor Trust Study Presentation Transcript

  • CFA Institute & Edelman Investor Trust Study 2013
  • 2 Methodology AUDIENCE HOW MANY ACCURACY WHEN HOW Retail & Institutional Investors in the US, UK, Hong Kong, Canada & Australia n = 2,104 Total n = 1,604 Retail n= 500 Institutional Margin of Error at the 95% Confidence Level = ±2.1%, Total = ±2.5%, Retail = ±4.4%, Institutional Data Collected June 7-25, 2013 Online Survey RESEARCH OBJECTIVE: To better understand the dimensions that shape investor perceptions of trust in investment managers, as well as the actions that help to build trust.
  • 3 Executive Summary The State of Trust in the Investment Industry: Trust is fragile Overall, trust in the Investment Management industry is fragile, with half of investors trusting investment managers to do what’s right. Investors are more optimistic about the capital markets, but if trust in the industry is not bolstered, we risk damage to the capital markets as an essential societal purpose. Trust in Practitioners & Firms: Looking beyond numbers toward aligned interests In todays landscape, investors are looking for more than performance and financial gains – they care about their firms’ and investment managers’ behavior. Trust that investment managers will act in their clients’ best interest is what really matters in hiring decisions. A Path Forward: Taking action Investment managers should always have an eye toward performance and fees, but they are now considered the baseline. Investment managers must address the concerns of investors by demonstrating commitment to ethics and aligned interests in order to build trust in the industry and capital markets at large.
  • 4 THE STATE OF TRUST IN THE INVESTMENT INDUSTRY: TRUST IS FRAGILE
  • 5 18% 16% 20% 23% 27% 16% 6% 27% FINANCIAL SERVICES Shown: % Trust and %Trust Great Deal Trust great deal 52% 50% 61% 51% 65% 45% 33% 69% Investors are more apt than the general population to trust the financial services industry to do what is right, but trust is still fragile Q10. Please indicate how much you trust businesses in each of the following industries to do what is right. Please use a 9-point scale where one means that you “do not trust them at all” and nine means that you “trust them a great deal” [Top 2 Box, Trust Great Deal; Top 4 Box, Trust] RegionInstitutionalRetailTotal 46% 52% 50% 61% General Population Total Investors Retail Institutional FINANCIAL SERVICES Shown: % Trust • According to Edelman Trust Barometer, more informed people tend to trust more, yet total investors are only slightly more likely than the general public to trust the financial services industry. • Not surprisingly, institutional investors, who are arguably most informed, trust the industry more so than retail investors • Even among investors, the financial services industry is less trusted than other industries such technology, automotive and food & beverage.
  • 6 Just half of investors trust investment management firms to do what is right, with low intensity Q22. Now thinking about specific sectors within the financial services industry, please indicate how much you trust businesses in each of the following sectors to do what is right. Again, please use the same 9-point scale where one means that you “do not trust them at all” and nine means that you “trust them a great deal”. [Top 2 Box, Trust Great Deal; Top 4 Box, Trust] 15% 13% 18% 21% 23% 13% 7% 21% INVESTMENT MANAGEMENT FIRMS Shown: % Trust and %Trust Great Deal Trust great deal Retail 51%53% 61% 63% 44% 39% 68% Total Institutional Region 54%
  • 7 Q26. To what extent do you agree or disagree with the following statement? “I have fair opportunity to profit by investing in capital markets.” 19% 18% 29% 24% 25% 18% 18% 18% “I have fair opportunity to profit by investing in capital markets.” Shown: % Agree and % Strongly Agree Somewhat… 77% 81% 81% 70% 69% 74%73% Total Retail 71% Institutional Region Yet, more than seven in ten investors agree they have fair opportunity to profit by investing in capital markets However, just one in four investors strongly agrees with this statement
  • 8 To date, investment management professionals and their firms have been most effective in enhancing investors’ trust in capital markets Q27-31. How effective has each of the following been in enhancing your trust in the capital markets? Use a nine-point scale where one means “not at all effective” and nine means “extremely effective.” [Top 4 Box, Effective] 55% 41% 38% 38% 35% 52% 39% 36% 35% 32% 63% 49% 45% 47% 43% Investment management professionals that I deal with Investment management firms Regulators/legislators in my country Investment industry associations Regulators globally Past Effectiveness Shown: % Effective Total Retail Institutional
  • 9 In the coming year, investors believe regulators can do the most to enhance their trust in capital markets • Overall, 52% of investors feel regulators, either globally or locally, have the most impact on enhancing trust. • Interestingly, the 2013 Edelman Trust Barometer cited low trust in government: just 14% trust the government to make ethical decisions. Q32. Which of the following can do the MOST in the coming year to enhance your trust in the capital markets? 28% 13% 34% 18% 8% Investment management professionals that I deal with Investment management firms Regulators/legislators in my country Regulators globally Investment industry associations Total Regulators: 52%
  • 10 TRUST IN INDIVIDUAL PRACTIONERS & FIRMS: LOOKING BEYOND THE NUMBERS TOWARD ALIGNED INTERESTS
  • 11 Investors rank the attribute “trusted to act in my best interest” as most important when making a decision to hire an investment manager • “Trust to act in my best interest” was cited twice as much as “ability to achieve high returns.” • Delivering consistent returns and low fees were traditionally considered most important in hiring an investment manager, but now these are table stakes. Q33. Please rank each of the following attributes in order of their importance when making a decision to hire an asset or investment manager where “1” is “most important” and “6” is “least important.” [Top Box, Most important] 35% 17% 17% 15% 8% 7% Trusted to act in my best interest Ability to achieve high returns Commitment to ethical conduct Recommended by someone I trust Compliance with industry best practices Amount/structure of fees Shown: % Most Important
  • 12 A PATH FORWARD: TAKING ACTION
  • 13 53% 52% 51% 48% 47% 33% 20% 18% 9% ATTRIBUTES Shown: % Very Important Behavior-related attributes are more important than performance- related attributes when building investors’ trust in investment managers Q34-43. How important is each of the following attributes to building your trust in an asset or investment manager? Please use a 9-point scale where one means that attribute is “not at all important to building your trust” and a nine means it is “extremely important to building your trust” in an asset or investment manager. [Top 2 Box, Very important] Has transparent and open business practices Takes responsible actions to address an issue or a crisis Has ethical business practices Delivers consistent financial returns to investors Offers high quality products or services Has highly-regarded and widely admired top leadership Creates programs that positively impact the local community in which the company operates Is an innovator of new products, services or ideas Communicates frequently and honestly on the state of its business
  • 14 53% 51% 50% 48% 48% 47% 46% 43% 43% 41% 40% 38% 31% 29% 27% 24% 17% 13% ACTIONS Shown: % Very Important Similarly, actions related to behavior are the most important to building investors’ trust in investment managers Q44-61. How important is each of the following actions to building your trust in an asset or investment manager? Please use a 9-point scale where one means that action is “not at all important to building your trust” and a nine means it is “extremely important to building your trust” in an asset or investment manager. [Top 2 Box, Very important] Is transparent about both successes and failures Clearly discloses unavoidable conflicts of interest Complies with voluntary codes of ethics Reports in simple metrics and language that I understand Maintains independence and objectivity Has strong past performance Has fee structures that align with my interests Offers insights on risk management Has staff with expert credentials Complies with global investment performance standards Reports on more than just returns Has no regulatory sanctions Shows evidence of engagement with companies in the portfolio Communicates with me more than they need to Has low portfolio turnover Has a strong presence in the industry Has a strong presence in traditional/print and trade media Has a strong presence in social media channels
  • Investment managers should always have an eye towards performance and fees, but they are now considered the baseline. Investment managers must address the concerns of investors by demonstrating commitment to ethics and aligned interests in order to build trust in the industry and capital markets at large.