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Value in advice despite dip in trust levels

Lisa Carroll  |  27 Jul 2020Text size  Decrease  Increase  |  
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Australian retail investors are less trusting of financial advisers despite seeing value in their potential to find investing opportunities, according to new research by the Chartered Financial Analysts Societies of Australia.

A new survey reveals that just one in four Australian retail investors (24 per cent) trust the financial services industry, down from 31 per cent in 2018, and compared to 47 per cent globally, yet many Australians still see value in having a financial adviser to further their financial opportunities. The survey also suggests some positives have come out of the Hayne royal commission.

The survey, by the CFA Institute ofretail and institutional investors in 15 markets globally, measured their level of trust in the investment industry. Their report, “Earning Investors’ Trust: How the Desire for Information, Innovation, and Influence is Shaping Client Relationships, also found just 37 per cent of Australian retail investors believe their financial advisers always put their interests first, down from 44 per cent in 2018.

Yet Australian investors clearly agree that having a financial adviser can add value. Whereas just 57 per cent of retail investors without an adviser said they have a fair opportunity to profit by investing in capital markets, this jumped to 81 per cent for those investors using an adviser. 

The reasons for the relatively low level of trust that Australian retail investors have in financial services providers could be because Australian investors overall are less likely to have a financial adviser to begin with.

The survey reveals that only 34 per cent of Australian retail investor respondents have a financial adviser compared to 56 per cent of advisers globally – in the US, the figure is much higher at 60 per cent and in Canada it’s 66 per cent.

We know from the survey that people who have a financial adviser are generally much more trusting of the financial services industry. The data shows that retail investors’ level of trust in the financial services industry is 57 per cent. This drops to 33 per cent for investors who do not have an adviser (we don't have a breakdown of this data point for Australia). So, this is what could be pushing down overall trust levels in Australia.

Transparency findings encouraging

In some respects, Australians are in fact happy with the transparency of their financial adviser. The survey asked a specific question, “How transparent do you think your financial adviser is with you regarding fees?”  In Australia, 63 per cent said their adviser is very transparent on fees and 33 per cent said transparent. This compared to 50 per cent and 42 per cent globally.

The survey also asked: “How transparent do you think your financial adviser is with you regarding conflicts of interest?”   In Australia, 59 per cent said their adviser is very transparent on conflicts and 34 per cent said transparent. This compared to 46 per cent and 43 per cent globally.

These datapoints suggest Australian investors with financial advisers find their advisers more transparent on fees and conflicts then global retail investors generally. This also suggests that some good has come out of the Hayne royal commission and new FASEA requirements (code of ethics; education requirements; mandatory continuous professional development).  With these reforms in place, and the ongoing work of groups like the CFA Societies Australia to raise professional standards, this could be leading to greater transparency levels in financial advice, notwithstanding the negative publicity about fees and conflicts through the Hayne royal commission.

It is also interesting to note that Australians retail investors are less tolerant then their global peers regarding high fees, a lack of communication from their advisers and underperformance. In response to this question: “Would any of the following make you consider leaving your current financial adviser?”, Australian investors are clearly less tolerant of these factors than global retail investors generally.

Considerations to leave an adviser

Considerations to leave an adviser

Source: CFA Societies of Australia

CFA Societies Australia continues to promote the importance of access to quality financial advice, particularly in times of market turbulence. We advocate for and support the continuing professionalisation of the industry, including a clear best interest duty and independence of advice to boost levels of trust in Australia, which lag those of other major countries, as the table below indicates.

Trust level in the financial industry among retail investors

Trust level in the financial industry among retail investors

Source: CFA Societies of Australia

Financial advisers can make a crucial difference to whether investors will succeed in meeting their investment goals. With interest rates at low or negative levels in many places in the world, finding new opportunities to invest will be important to investors meeting their financial objectives, and those with an adviser are better equipped to consider these options. Nearly two-thirds of retail investors with an adviser are interested in accessing new investment products, compared with only about one-third of retail investors without an adviser.

Methodology

The Trust Survey was conducted with 3,525 retail investors and 921 institutional investors in October and November 2019. The markets surveyed were Australia, Brazil, Canada, Mainland China, France, Germany, India, Japan, Mexico, Singapore, South Africa, UAE, UK, US, and Hong Kong SAR, China. Retail investors were aged 25 years or older with investible assets of at least US$100,000, except in India where the minimum was adjusted to 500,000 rupees. Institutional investors included individuals responsible for investment decisions with at least US$50 million assets under management, from public and private pension funds, endowments and foundations, insurance companies and sovereign wealth funds.

is national CEO of CFA Societies of Australia.

This is a financial news article to be used for non-commercial purposes and is not intended to provide financial advice of any kind. Opinions expressed herein are subject to change without notice and may differ or be contrary to the opinions or recommendations of Morningstar as a result of using different assumptions and criteria. 

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