Insights from the 2022 CFA Institute Investor Confidence Study

Tuesday, June 07, 2022 10:25 a.m.

Corporate responsibility is more important than ever. Today, many investors expect more than just a profit from their financial decisions; they want easy access to financial products and to be able to express their personal values ​​through their investments. Trust in financial service providers that enable investors to build wealth and achieve their personal goals is key to meeting these new investor expectations. Trust is the foundation of customer relationships and investor confidence.

The CFA Institute’s 2022 Investor Confidence Survey – the fifth in a biennial series – found that levels of confidence in financial services among retail and institutional investors are at an all-time high. Reflecting the views of 3,588 retail investors and 976 institutional investors across 15 global markets, the report is a sentiment barometer and an encouraging indicator of confidence gains in financial services.

Wealth managers may want to know how this trust can be cultivated and how they can reinforce it within their own organizations. I describe three key trends that will shape the future of customer trust.

The rise of ESG

ESG measures have gained prominence in recent years as investors increasingly consider environmental, social and governance factors when assessing risks and opportunities. These measures have an impact on investor confidence and their propensity to invest; we find that among retail investors, 31% expect ESG investing to result in higher risk-adjusted returns, while 44% are primarily motivated to invest in ESG strategies because they want to express their personal values ​​or invest in companies that have a positive impact on society or the environment.

The trust study shows us that ESG boosts trust more broadly. Of those surveyed, 78% of institutional investors said the growth of ESG strategies had improved their confidence in financial services. 100% of this group expressed an interest in ESG investment strategies, as did 77% of retail investors.

There are also different priorities within ESG strategies, and our research revealed a clear distinction between priority issues for retail and institutional investors. Retail investors focused more on investments that tackled climate change and clean energy use, while institutional investors placed more emphasis on data protection and privacy, as well as sustainable management of the supply chain.

What is clear is that the rise of ESG investing is building trust and creating opportunities for new products.

Technology breeds trust

Technology has the power to democratize finance. In financial services, technological developments have reduced costs and increased access to markets, leveling the playing field. Allowing easy tracking of investments, digital platforms and apps allow more people than ever to engage in investment. For wealth managers, these digital advancements mean an opportunity to improve connection and communication with investors, a strategy that also builds trust.

The study shows us that the benefits of technology are being felt, with 50% of retail investors and 87% of institutional investors expressing that increased use of technology increases confidence in their financial advisors and asset managers, respectively. Technology is also leading to increased transparency, with the majority of retail and institutional investors finding their advisor or investment firms to be very transparent.

It should be recognized here that the taste for technology-based investing varies across age groups. More than 70% of millennials expressed a preference for technology tools to help them navigate their investment strategy over a human advisor. However, among the over 65s surveyed, only 30% expressed the same choice.

The lure of customization

How is an investor’s personal connection to his investments manifested? There are two main ways. The first is to have an advisor who understands you personally, the second is to have investments that meet your personal goals and match what you value.

Of the retail investors surveyed for the study, 78% expressed a desire for personalized products or services to help them meet their investing needs. Of these, 68% said they would pay higher fees for this service.

So what does personalization actually look like? The study identifies the top three products of interest among retail investors. These are: direct indexation (investment indices adapted to specific needs); impact funds (those that allow investors to pursue strategies designed to achieve specific real-world results); and personalized research (customized for each investor).

With regard to the latter product, it should be noted that the choice of advisers who share common values ​​also becomes more important. Three-quarters of survey respondents said having an advisor who shares their values ​​is at least somewhat important to them. Another way to connect personally with customers is to build a strong brand, and the proportion of retail investors favoring a brand they can trust over individuals they can rely on continues to grow; it reached 55% in the 2022 survey, compared to 51% in 2020 and 33% in 2016.

Confidence in the future

As the pressure on companies to demonstrate their reliability increases, investors will also turn to financial services to build trust. Wealth managers who embrace ESG questions and preferences, enhanced technology tools and personalization can demonstrate their value and build lasting relationships with clients through market cycles.

To access the full report, click here.

Article originally published in Financial derivative.

ImaImage credit: ©Getty Images/Rob Daly

Dolores W. Simon