By Hal M. Bundrick
NEW YORK (
) -- What do investors look for when hiring a financial advisor? Superior investment performance? No. Low fees? Apparently not.
According to new research, most investors are searching for an advisor who will put their interests first. In the industry, that's known as a fiduciary standard. And 38% of investors say that trusting an investment manager to act in their best interest is the single most important factor in making a hiring decision, according to the just-released CFA Institute/Edelman Investor Trust Study. Achieving high investment returns was cited only half as often (17%), and fee amounts/structure only a fifth as much (7%).
Investors also say that transparent and open business practices, responsible actions to address an issue or crisis and ethical business practices are more important to building trust than performance-related attributes such as delivering consistent financial returns and offering high quality products or services.
"By focusing only on performance-centric standards, the industry is missing opportunities to build trust," says Kurt Schacht, CFA, managing director, Standards and Financial Market Integrity at CFA Institute. "Investors indicate in this study that they want a culture shift - a renewed focus on ethical behavior. Individual investment managers must be transparent, demonstrate integrity, and communicate clearly to strengthen client relationships and preserve trust in the industry and the markets at large."
Just over half (53%) of investors in the U.S., U.K., Hong Kong, Canada and Australia trust investment firms, but nearly three-in-four investors are still optimistic about their ability to earn a fair return from the capital markets.
According to the research, financial services is the least trusted industry among technology, food and beverage, pharmaceuticals, consumer packaged goods, automotive, telecommunications -- and banks.
Who do they think can help repair the system and restore that trust?
The government. Investors are saying, "bring in the regulators." More than half (52%) believe that the government has the greatest opportunity to effect change and enhance trust moving forward, far more than individual investment management professionals (28%) and investment management firms (13%). "When people lost trust in business during the financial crisis, they turned to government. And when they lost trust in government, they turned to individuals," said Ben Boyd, global chair of Edelman's Corporate practice. "Through our thirteen years of studying trust through the Edelman Trust Barometer, we have increasingly seen an emphasis placed on individuals to behave in ways that build trust and protect reputation. As this study shows, this holds true for the investment management industry as well."