A report published by CFA Institute titled ‘The Next Generation of Trust’ has revealed some interesting insights on why retail investors hire or fire advisors.
The survey covered 3,127 retail investors and 829 institutional investors worldwide, including 100 retail investors and 84 institutional investors from India.
The survey found that trustworthiness is the first and most important criterion for hiring an individual as advisor. Here trustworthiness means trusted to act in the best interest of clients. Referral ranked the second most important criterion, followed by the ability of an advisor to help clients achieve high returns, ethical conduct, compensation structure and compliance standard.
Of the 3,127 retail investors, 35% said that they would like to work with advisors who act in their best interests. While 18% retail investors prefer working with advisors through referrals, 17% want their advisors to help them achieve high returns.
The study suggests that many investors choose trustworthiness over investment performance and returns. The report said, “In each of our trust studies, retail respondents have consistently and overwhelmingly (by a 2-to-1 margin) chosen trustworthiness over investment performance as the top attribute when selecting a financial advisor. Trustworthiness is also a top attribute for institutional investors when selecting an investment manager, though they focus equally on ability to achieve high returns.”
While it is important to know why prospects hire you, it is equally important to be aware of the factors, which turn them off.
The survey found five key reasons why retail investors fire advisors. Among the most common reasons are underperformance and lack of communication.
“Trust maintenance must be connected to meeting client expectations, and for retail investors globally, the common reasons they leave their advisors are underperformance and a lack of communication or responsiveness. This means investment performance is more important for retaining clients than in getting new ones. A data or confidentiality breach is another significant reason retail investors give for leaving (40%) and for institutional investors, it has now outpaced underperformance as the top reason to leave an asset manager,” said the report.
Top five reasons why retail investors hire and fire financial advisors
|
Why retail investors hire you |
Why retail investors fire you |
|
Trusted to act in best interest |
Underperformance |
|
Recommended by someone they trust |
Lack of communication/responsiveness |
|
Ability to achieve high returns |
Data/confidentiality breach |
|
Commitment to ethical conduct |
Increase in fees |
|
Compensation structure |
Departure of the financial advisor from current firm |
Source: CFA Institute
