putting investors first: what investors want · adviser. online research. friends and family....

PUTTING INVESTORS FIRST: WHAT INVESTORS WANTAtlanta Society of Finance and Investment Professionals

Rebecca Fender, CFAHead, Future of Finance

18 May 2016

THE FUTURE OF FINANCE INITIATIVE

A long-term global effort to shape a trustworthy, forward-thinking

investment profession that better serves society.

2

WHAT DOES IT MEAN TO PUT INVESTORS FIRST?

• Personally committing to ethical standards, and

expecting the same of others.

• Looking at how your organization works and adopting

aligned business practices in terms of governance and

incentives.

• Truly understanding and assessing our clients’ needs

and goals.

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5

THE BOTTOM LINE VALUE OF TRUST

INVESTORS LACK TRUST IN FINANCIAL SERVICES

6

77%

61%RETAIL

47%

57%INSTITUT-

IONAL

51%GENERAL

PUBLIC

TECHNOLOGY

FINANCIALSERVICES

MEDIA

Source: CFA Institute Trust to Loyalty Survey 2016

How much do you trust businesses in these industries to do what’s right?

THE PROFESSION’S RESPONSIBILITY

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“All of us involved in the financial sector have to realise that if community expectations are not being met, the result may well be more prescriptive rules, which may over time not be a good outcome for industry or the general public.”

John A. Fraser, Secretary to the Treasury in Australia22 March 2016

TRUST VARIES BY MARKET

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TRUST MATTERS WHEN HIRING AN INVESTMENT MANAGER

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34%

21%14% 14%

9% 9%

27%23%

11%17%

9%13%

Trusted to act inmy best interest

Ability to achievehigh returns

Recommendedby someone I

trust

Commitment toethical conduct

Amount/structureof fees

Compliance withindustry best

practices

Which of the following is most important when making a decision to hire an asset or investment manager?

Institutional InvestorsRetail Investors


TRUST TO LOYALTY: WHAT REALLY MATTERS TO INSTITUTIONAL INVESTORS

10

72%

72%

71%

70%

68%

ACTS IN AN ETHICAL MANNERIN ALL OUR INTERACTIONS

FULLY DISCLOSES FEESAND OTHER COSTS

HAS RELIABLE SECURITY MEASURES TO PROTECT MY DATA

GENERATES RETURNS SIMILAR TO OR BETTER THAN A TARGET BENCHMARK

HAS ADOPTED A RECOGNIZED CODE OF CONDUCT FOR THE INDUSTRY


35%49%

36%47%

34% 32% 35% 29% 32% 26% 25%

16%

30%

26% 11%20% 19% 11% 16% 10% 14%

5%

51%

79%

62% 59% 54% 50% 46% 45% 42% 39%30%

Total RetailInvestors

IndiaRetail

USRetail

FranceRetail

ChinaRetail

CanadaRetail

GermanyRetail

UKRetail

Hong KongRetail

AustraliaRetail

SingaporeRetail

Extremely likely Very likely

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How likely are you to recommend an Investment Firm you work with to others?[Retail Investors; % “extremely/very likely”]

LOYALTY: HALF WOULD RECOMMEND THEIR CURRENT FIRMBut few say “extremely” likely


36%

21%13%

6% 5% 5% 4% 2% 3%7%

My personalfinancialadviser

Onlineresearch

Friends andfamily

Investmentnewsletters

Media,including print,TV and radio

Academicexperts/books

My employer'sretirement plan

provider

Social media Other I don't get anyinvestment

advice

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Who do you trust most to give you investment advice?

• Globally, retail investors are most likely to cite a personal financial adviser as their most trusted source for investment advice; online research is also a key source

WHO DO RETAIL INVESTORS TRUST FOR INFORMATION?

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How important are attributes in the following categories vs. how well are investment firms delivering on these attributes?

[Retail Investors]

Largest Gaps

MAJOR GAPS BETWEEN WHAT IS IMPORTANT TO INVESTORS AND SATISFACTION LEVELS

Clearly explains all fees and costs before they are charged -31 pts

Protects my portfolio from losses -31 ptsFully discloses fees and other costs -30 pts

Generates returns similar to or better than a target benchmark -29 pts

Charges fees that reflect the value I get from the relationship -29 pts

Is forthright about disclosing and managing conflicts of interests -28 pts

Generates returns similar to or better than other firms (in comparable products) -28 pts


TOP FIVE REASONS CLIENTS LEAVE

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Underperformance Increases in fees

Data or confidentiality breach

Lack of communication & responsiveness

Regulatory sanction


WHAT WOULD INVESTORS PAY MORE FOR?Personalization, client service, and investment professionals with credentials are opportunities for differentiation

Retail Investors Institutional InvestorsUnderstands my unique tax and estate planning position

Acts as a partner in problem solving; goes beyond a specific mandate to lend insight on our investment concerns

Communicates with me regularly, in down markets as well as up markets

Communicates proactively about market dynamics and their effect on my portfolio

Employs investment professionals with credentials from respected industry organizations

Employs investment professionals with credentials from respected industry organizations

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CLIENT VIEWS ON THE FUTURE

ABOUT A THIRD OF INVESTORS EXPECT A FINANCIAL CRISIS IN THE NEXT 3 YEARS

17

Tota

l Ins

titut

iona

l

Tota

l Ret

ail

U.K

.

U.S

.

Can

ada

Aus

tral

ia

Chi

na

Sing

apor

e

Hon

g K

ong

Ger

man

y

Fran

ce

Indi

a

Very likely Extremely likely

Retail Investors

How likely it is that there will be another financial crisis within the next 3 years?

33%29%

19%25% 25% 26%

31% 31% 32% 34%

46%

59%


ONLY HALF OF INVESTORS SURVEYED THINK THEIR INVESTMENT FIRMS ARE WELL PREPARED FOR A CRISIS

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How prepared do you think your investment firm(s) are to manage your portfolio through a financial crisis?

Total Retail InvestorsTotal Institutional Investors

52%Very well or well

prepared

49%Very well or well

prepared

12% Very well prepared

11% Very well prepared

40% Well

prepared

38% Well

prepared


IMPLICATIONS FOR INVESTMENT FIRMS AND INVESTMENT PROFESSIONALS

• Control what you can control

• Share your plan (and produce one if needed!)

• Time is of the essence

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Total Retail InvestorsCanada

USAustralia

UK France

Germany Hong KongSingapore

ChinaIndia 64%

55%50%

40%37%

31%31%28%27%

19%38%

36%45%

50%60%63%

69%69%72%73%

81%62%

THE ROLE OF HUMAN GUIDANCE VERSUS TECHNOLOGY

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In 3 years’ time, which of the following do you think will be more important to you?[Retail Investors]

Having a person to help navigate what is best for me and execute on my investment strategy

Having access to the latest technology platforms and tools to

execute my investment strategy


THE YOUNGER THE INVESTOR, THE MORE THEY WANT TECHNOLOGY VERSUS HUMAN GUIDANCE

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In 3 years’ time, which of the following do you think will be more important to you?[Retail Investors]

Having a person to help navigate what is best for me and execute on my investment strategy

Having access to the latest technology platforms and tools to

execute my investment strategy

Total Retail Investors

25-34 years old35-44 years old45-54 years old55-64 years old

65+ years old 24%28%

38%45%

52%38%

76%72%

62%55%

48%62%


22

37%

23%

15%

11%

2%

40%

13%11%

30%

2%0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Robo-advisers Marketplace /Peer-to-Peer

lending

Crowdfunding Blockchaintechnology

Other

Which technology do you see as having the greatest impact on the financial services industry 1 year and 5 years from now?

1 year from now 5 years from now

FINTECH SURVEY OF CFA INSTITUTE MEMBERS: UNDERSTANDING THE LANDSCAPE

The data collection was conducted online 5-19 February 2016. There were 3,803 members who were invited to participate and 775 valid responses were received for a response rate of 20% and a margin of error of ±3.2.

IMPLICATIONS FOR INVESTMENT FIRMS AND INVESTMENT PROFESSIONALS

• The trend toward robo-advice is meaningful and coming quickly

• Use technology to help you, and your clients

• Focus on adding value where humans have an advantage

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THE INVESTMENT PROFESSION’S OPPORTUNITY

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The industry has hidden behind market conditions (“not in our control, not our fault”) and let new drivers bring about early stages of decline in the perception of value for fees.

The new model has to deliver value through all segments – from millennials to baby boomers.

Increasingly that model must have more immediacy, simplicity, personalization, and integrity.

Even in a lower fee rate world, there can be higher AUM, and a bigger value proposition exploited by those who adapt best to the new landscape.

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