High-Net-Worth Investors Trust Advisers, Not Fund Cos.

A survey said 87% of investors have a high degree of trust in their adviser, but a majority are dissatisfied with the fund industry.

When asked to rank their trust of service providers, advisers were the second most trusted, after the family physician. The fund industry was listed last, after auto mechanics, according to the survey of both advised and unadvised high-net-worth and affluent investors released today by iShares Funds, a division of Barclays Global Investors (BGI).

While an overwhelming amount of respondents trust their adviser, almost the same amount (71%) distrust the fund industry.

Lee Kranefuss, CEO of iShares at BGI, cites the personal relationship people have with their adviser as a reason why there is so much trust. Trust is built over time with broad-based planning from the adviser. “It’s like any professional relationship,” he told PLANADVISER.com. “When it’s done well, people develop confidence.”

Kranefuss said the difference of trust people have for their adviser compared to the trust they have for the fund industry was most striking to him about the survey. But the funds industry is well aware that most funds go through the adviser.

“We’ve been living this world and working in it and seeing this over and over and I think there’s a huge element of congratulations to advisers out there, because this is a very concrete endorsement of what they do,” he added.

Fee-based advisers received higher scores in many of the questions than commission-based advisers. For instance, 80% of respondents with fee-based advisers said they are satisfied with their adviser on taking responsibility for their financial well being, as opposed to 68% of respondents using commission-based advisers. Some good news for advisers—only 9% of advised investors are at all likely to change their adviser in the next year.

Fund Distrust

The majority of investors surveyed believe that the fund industry is not meeting their expectations or putting the investors’ needs first. (A majority of investors —81% — believe that the industry should put the needs of investors first). Only 45% of investors surveyed expressed confidence that their investments would be safe in a volatile market, with half expecting returns in 2008 to be worse than 2007.

Kranefuss said this distrust of the funds industry is not just based on current market woes. While it might have caused some of the negativity, the current market does not account for all of the distrust.

The research suggests that fund industry dissatisfaction among the individuals surveyed is driven by issues such as perceived lack of value and transparency for the fund fees they pay and the belief that risks relative to investment returns and potential tax implications are not clearly articulated.

“The survey shows that investors believe that the fund industry is falling short in meeting their needs — at a time of great economic uncertainty and market volatility,” said Kranefuss. “This survey should be a clarion call to all of us in the fund industry. While there is a strong trust and bond between investors and their financial advisers, this good news is tempered by a noteworthy mistrust of the fund industry as it relates to a lack of transparency and not providing a clear understanding of investment risks and taxes.”


Investors also said the media fails to provide credible information, with 73% of investors surveyed saying it sensationalizes certain issues or trends. Only 19% of investors surveyed said the media provides accurate reporting.

“Most people feel there’s an overplaying in the press of what’s hot and what’s not,” Kranefuss said. And investors trust their advisers to cut through the information they receive from both the press and the fund industry, he said.

The survey, conducted by independent firm Cogent Research, measured the attitudes and expectations of high-net-worth investors toward a wide range of issues, including attitudes toward the fund industry, media and personal confidence and engagement with investments.