CFA Institute: Technology and Product Personalization Fuel Investor Trust

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| Increased Use of Technology and Product Personalization Fuel Investor Trust, CFA Institute Investor Trust Study Reveals

CFA Institute published Enhancing Investors’ Trust – the 2022 CFA Institute Investor Trust Study, the fifth in its biennial series, which measures trust levels and explores the factors that drive trust in financial services among retail and institutional investors in 15 markets globally.

The study reveals that trust in financial services has reached an all-time high, fueled by increased use of technology and product personalisation.

Key Findings

– The proportion of institutional investors with high or very high trust in financial services has risen to 86% (65% in the prior survey). Among retail investors, trust levels are up to 60% (previously 46%). Retail investors are now more trusting in all markets surveyed except India, where trust has fallen from 87% to 83%, although India remains the market with the highest trust level. The United States, Singapore and Australia recorded the highest increases in trust levels (increasing to 64%, 62%, and 45% respectively). Germany (37%) is now the lowest trust market (previously Australia). Millennial retail investors—and particularly those aged 25 to 34—are the most trusting of financial services (72% of this cohort have high or very high trust).

– Advisers add trust: Almost twice the number of retail investors with advisers (58%) are interested in trying new investment products compared to investors without an adviser (37%).

– Advised investors are also more interested in personalized products (82%) and are willing to pay additional fees for customization (62%). Direct indexing (cited by 56%), personalized impact funds (53%) and artificial intelligence-driven investments (44%), are of the most interest to retail investors with advisers.

– Most institutional investors (87%, up from 66%) and most retail investors (50%, up from 48%) say technology increases their trust in their asset manager or adviser – due to more transparency, simplified access to markets and products, and personalization.

– In terms of generational differences, the under-35s are nearly twice as likely as the over 65s to have a retail trading account (68% versus 37%, respectively), and are nearly three times more likely to trust digital nudges (92% versus 33% respectively). Overall, 71% of retail investors say that retail trading apps have increased their understanding of investing, and most say these apps have increased their frequency of trading (57%).

– For the first time, most retail investors (56%) envisage that in the next three years, access to technology platforms and tools through which they can execute their investment strategies will be more important than access to a human being for assistance. This reflects a steady shift in sentiment across 12 of 15 markets surveyed and resonates most loudly in India (90%) and the United Arab Emirates (84%). Canadian retail investors are least likely to prefer tech-led investment execution (29%).

– Advice is still the domain of humans. Three-quarters (74%) of retail investors are more likely to trust human advice versus robo-led advice—a level that has remained stable since 2020 (73%). China is currently the only market where fewer than half of retail investors distinctly prefer a human adviser.

– Globally, 84% of institutional investors would invest in a fund that primarily uses artificial intelligence to select investment holdings, with a similar proportion (78%) believing that use of AI in investment-decision-making will lead to better investor outcomes. A lesser proportion of retail investors (39%) would consider AI-driven funds.

– Two-thirds of institutional investors say they are now invested in cryptocurrencies, with government-sponsored pension plans the most likely holders (94% of those surveyed). Globally, 32% of retail investors invest in cryptocurrencies—ranging from 67% of surveyed investors in India, to 7% in Canada. Overall, fewer than half of retail investors trust cryptocurrencies to hold their value (42%), compared to 84% of institutional investors, consistent with the different usage levels of crypto by these two groups.

– Retail investors across all markets are either interested in or already using ESG investing strategies (77%). ESG areas of interest vary among retail and institutional investors: climate change, clean energy, air and water pollution are the top concerns for retail investors, while data protection, sustainable supply chain management, and climate change are the top concerns for institutions. Among institutional investors, best-in-class screening (cited by 57%) has overtaken engagement and active ownership as the most popular approach to ESG investing, and institutional investors are showing high levels of trust in ESG messaging and net-zero pledges (87% trust such messaging). In contrast, less than half (46%) of retail investors trust these pledges, illustrating some concerns over potential greenwashing.

– Globally, 40% of retail investors say it is important to have an adviser who shares their values. This sentiment is highest in China, where 74% believe shared values are important. Fewer than a quarter of respondents in Australia and Canada (23% and 18%, respectively), hold this view, however.

– Institutional investors are increasingly using brands as a proxy for trust, with 55% citing the importance of brand in selecting firms to work with. In-person connection still matters, particularly among retail investors in low-trust markets. Globally, 54% of respondents favor in-person meetings for establishing an investor-client relationship at the outset. In fact, most retail investors in every market say that in-person interaction is necessary to trust an adviser.

– Institutional investors revealed a change in the factors that could lead to lost trust. From a previous emphasis on financial performance, respondents reveal that a failure to adopt a standard voluntary code of conduct (cited by 23%), and a publicly stated corporate view on a social or political issue that does not align with those of the institutional client (21%), are now the top two factors for lost trust.

Results and full findings can be found here.

CFA Institute

All opinions expressed are those of the author. investESG.eu is an independent and neutral platform dedicated to generating debate around ESG investing topics.