Executive Director of the Durable Portfolio Construction Research Center
Natixis Investment Managers – U.S. Distribution
In today’s complex and uncertain world, trust may be the most valuable of all investor assets. Every day, individuals across the globe are presented with a seemingly endless stream of news and often conflicting analysis. What investors hear on bell-to-bell coverage of one news source may be disputed in the headlines of another. What’s reported as a sure thing by daily investor newsletters may be dismissed as “fake” on social media. In the end, investors can find themselves struggling to distinguish between expert advice and propaganda.
Faced with these prospects it’s no surprise that 87% of individuals surveyed worldwide say that when it comes to making investment decisions they trust themselves. But in light of tightening regulation of financial advice across the globe, some may be surprised to learn that 88% of individuals also trust their investment professional.
Who Do Investors Trust?
Investors have a clear preference for who they can trust when it comes to making investment decisions.
From Trust to Loyalty
Investors’ trust runs seemingly deep, with a majority of individuals worldwide placing their loyalty with their investment professional above loyalty to the firms where they keep their money. Their connection is so strong that nearly six in ten say that if their investment professional changed firms, they would go with them. This sense of loyalty is strongest with younger investors, with fewer retirees saying they would be willing to make the move.
Referrals Based on Trust
Investors’ trust of a more personal connection to financial advice remains clear in their search for an investment professional. In sourcing a professional to help guide their investments, individuals rely on referrals first from friends, family, and colleagues (29%), followed by referrals from another professional such as their attorney or accountant (20%). Few said they found their investment professional on the Internet (12%) or over social media (6%).
In making their ultimate selection of an investment professional, fees are often an important consideration, but individuals typically apply a number of criteria to making their selection. It begins with the size and reputation of the firm (42%), followed by fees (40%) and a personal referral from friends and family (39%). Beyond this, investors consider the professional’s ability to deliver a comprehensive financial plan (33%) and his or her qualifications including education and credentials (32%). Given that only ten percentage points separate these five factors, it appears that investors are most likely to look at the total package offered by a professional, rather than brand and fee considerations.
Delivering on Client Expectations
Trust is a solid foundation for a strong client relationship, but many investors have clear expectations on how that trust will be earned. A key step to winning higher levels of trust may be to look beyond the table stakes of a diversified investment portfolio. Investors report that they need professional help with a range of factors not covered in asset allocation plans. Most frequently, they want help understanding risk (47%), assistance with tax planning (44%), budgeting (28%), long-term care (28%), estate planning (27%), and managing (25%).
Overall, it would appear that investors most want to have someone akin to a personal chief financial officer who can help align investment strategy with a comprehensive financial plan. Those professionals who are prepared to deliver on the wide range of client needs and help manage both assets and liabilities may be best positioned to earn their business over the long term.
The news is positive for financial professionals, but there is always room for improvement. Areas where investors say they want assistance include implementation of values-based investment factors such as environmental, social and governance (ESG) and help in discussing financial planning with their families. Sometimes it starts with just listening more closely to clients to understand their concerns.
Opportunities for Winning Over DIY Investors
Self-directed brokerage accounts have given many do-it-yourself investors a range of sophisticated tools for managing their assets. But even those DIY investors included in our survey still believe there is value in working with an investment professional. Most frequently, these individuals cite their reason for going it alone as I can do it myself (36%), advice costs too much (35%), or is not worth the fee (26%). While this may not sound like good news for investment professionals, a closer look at the views of these individuals reveals a greater need for professional advice than even they may admit.
DIY investors may believe in their own abilities to make investment decisions, but only 38% overall say they completely trust themselves in the process. They know they may need help in some of the more complicated phases of financial planning including understanding risk, tax planning, and long-term care planning. More than half (56%) say a financial professional can help them achieve their goals. Even if they are able to build their assets alone, half also say they will need professional help in retirement, a time when they must look at effective strategies for managing distributions.
Every relationship between a client and a financial professional has to be built on trust. But earning it and keeping it may require a new way of thinking about what you offer clients. Conducting a risk profile and building an asset allocation plan are really just table stakes. In the age of automated advice, the key may be working with the more human aspects of investments. Financial professionals can start to differentiate themselves by getting to know clients beyond the figures on an investment statement.
Here’s a simple set of questions to ask yourself to help ensure you’re on the road to earning a greater level of trust with your clients: Are you asking clients about broader financial concerns such as long-term care or estate planning? Have you discussed how environmental, social and governance (ESG) factors could address key client concerns? Have you offered to speak with their children about building strong financial habits? Is there a clear financial plan in place for each client? Can you explain your fee structure in such a way that clients not only understand what they’re paying for, but also see the value of your services?
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Natixis Investment Managers, Global Survey of Individual Investors conducted by CoreData Research, February-March 2017. Survey included 8,300 investors from 26 countries.
ESG Investing focuses on investments in companies that demonstrate adherence to environmental, social and governance (ESG) practices, therefore the universe of investments may be reduced. An ESG strategy may sell a security when it could be disadvantageous to do so or forgo opportunities in certain companies, industries, sectors or countries. This could have a negative impact on performance depending on whether such investments are in or out of favor.
This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed above may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted.