This article was contributed to us by Maurice Teo, CFA Singapore Advocacy Committee.
Singaporeans are still grappling with trust issues – with their investment advisers.
“The Next Generation of Trust: A Global Survey on the State of Investor Trust“, a study commissioned by the CFA Institute, revealed that only 1 in 10 investors in Singapore believe that financial advisers always put their clients first, compared to 35 percent of global respondents. The only market where this was lower was in Hong Kong (7 percent).
The survey also found that only 47 per cent of Singapore retail investors “trust or completely trust” the financial services industry. This is higher than the global average trust level of 44 per cent, but it is the third lowest score in the Asia-Pacific, after Hong Kong and Australia at 35 per cent and 31 per cent respectively.
What could be the reasons for this dismal state of affairs? Certainly, if one has been investing for the last 10 to 20 years, memories of the collapse of Lehman Brothers more than 10 years ago have left many investors of Lehman-linked products sold by reputable banks financially scarred. Many of the investors were simple, working-class people looking for safe investments for their retirement savings but little did they know they were sold toxic structured products linked to collateralised debt obligations. The survey results may be a reflection that investors are still healing and not having quite moved on.
This is further backed by a 2012 mystery shopping survey done by the Monetary Authority of Singapore (MAS), which found that financial advisers failed to carry out adequate fact-finding, omitted disclosing risk factors, amount and frequency of charges, warnings, exclusions, caveats and the free-look period in a significant number of advisory sessions. Up to a third of the product recommendations were assessed by an industry panel to be unsuitable based on the financial objectives of the “mystery shoppers”.
What Do Singaporeans Think Of Their Financial Advisers?
Delving more deeply into CFA Institute’s survey, a clearer picture emerges of what Singapore investors think of their investment advisers:
- Only 49 per cent of Singapore investors said their adviser is very accessible for questions or concerns, compared to 75 per cent globally.
- A low percentage (41 per cent) believe their advisers are well or very well prepared to handle the next financial crisis.
- The top reason to switch firms and advisers was lack of communication and responsiveness (59 per cent), ahead of underperformance (56 per cent), data or confidentiality breach (36 per cent), and increase in fees (34 per cent).
In other words, Singapore investors value investment advisers who are approachable, responsive and put their interests first. Further, Singapore investors value advisers who have the competencies to help them navigate through the next financial crisis. At the heart of it all, Singapore investors are looking for credibility and professionalism in their investment advisers.
The survey results make it clear that the time is now for investment advisers to measure up and ensure that they put investors’ interests first. Using a simple trust equation Credibility + Professionalism = Trust, investment advisers and their firms can take the following steps to foster trust among clients.
Credibility provides confidence that the investment professional or organisation is qualified to provide the required service. The next four tips for advisers cover experience, reputation, and credentials.
1. Maintain strong brand identity and follow through on brand promises. What values do your firm promote? Does your firm demonstrate the value of putting investors first? Considerations like these influence investors’ perceptions of your credibility, and ultimately whether they will accept an investment recommendation from you.
2. Employ professionals with credentials from respected industry organisations. Credentialed professionals have dedicated years to prove they have both mettle and mastery. 66 per cent of Singapore investors believe that credentials are an important factor in building a trusted relationship with investment advisers.
3. Stay focused on building a long-term track record to demonstrate competence and deliver value for money. The survey revealed that 72 per cent of Singapore investors believe that fees they pay should reflect the value they get from their relationships with their investment advisers, yet only 44 per cent of them believe that investment advisers are doing this well.
4. Adopt a code of conduct to reinforce your firm’s commitment to ethics. Ethics are becoming even more critical for maintaining trust— 56 per cent of Singapore investors say they would trust their investment advisers more if their firms adhere to a voluntary, industry-wide code of conduct. This is also consistent with the Guidelines on Fair Dealing issued by MAS in April 2009, which hold the board and senior management of financial institutions accountable for setting the culture and direction to align business practices with fair dealing outcomes.
Professionalism includes the trust-building elements of competency and values. The next four points addresses empathy, transparency, honesty, and the alignment of interests.
1. Improve transparency and clarity regarding fees, security, and conflicts of interest. Just 43% and 33% of Singapore investors say that their advisers are very transparent regarding fees and conflicts of interest respectively. Adequacy of information disclosure is one of the non-financial performance measures that financial advisers are subject to under MAS’s Balanced Scorecard Framework.
2. Use clear language to demonstrate that client interests come first. 75 per cent of Singapore investors want investment reports that are easy to understand, though only 49 per cent are satisfied with what they receive. The financial industry is well known for reams of prospectuses and reports reading like data dumps. Not all clients are financial whizzes and data scientists. Help them to understand what they are reading.
3. Showcase your ongoing professional development to improve investment knowledge. 74 per cent of investors in Singapore say they would have more trust in their adviser if the investment staff took time for continuing professional development. It also happens to be a regulatory requirement for representatives of investment advisory firms to undertake continuing professional development.
4. Demonstrate your dedication to the values that clients hold dear.The survey found that 51 per cent of Singapore investors would increase their trust levels if the adviser or firm they work with is a philanthropic partner for community efforts. Today’s investors increasingly desire for advisers to reflect care and concern for the community they live in.
Gaining The Trust Of Your Customers
There are no shortcuts to building lasting, trusting relationships with clients. Advisers and their firms should not be waiting for MAS or another mystery shopping exercise, which could already be underway, to keep them in check and should consider the gaps between what investors desire, and what investors are receiving. By stepping up their credibility and professionalism, investment advisers can underscore their value as a source of trusted advice.