How Technology and Personal Values Can Help Advisers Build Trust

Both retail and institutional investors see technology as a means of creating more transparency and broadening access to markets and advisory products.

The 2022 CFA Institute Investor Trust Study found that trust in financial services professionals and firms has increased significantly since 2020 among both retail and institutional investors.

The study also discusses how the use of technology can be a “trust multiplier” in the provision and consumption of investment services, and it emphasizes the importance of personal connections and values in building and maintaining trust.

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In its study, the CFA Institute says an important milestone has been reached: For the first time, most retail investors believe access to the latest technology will be more important than access to a human being when it comes to managing their investments.

The study found that 50% of retail investors and 87% of institutional investors feel technology increases trust in their financial adviser or asset manager—a rising trend in recent years. A majority of retail and institutional investors now believe their adviser or investment firms are very transparent, the study says.

“Technology enhances trust because it allows advisers and managers to offer more transparency, simplifies access to markets and products, and can better align product offerings with clients’ needs through personalization,” the survey report states. “Technology directly supports ‘execution trust,’ and if used well by financial advisers, it can bolster ‘relationship trust.’”

Given the high amount of trust seen in the technology industry generally, and the benefits to investors stemming from new financial technologies, 56% of retail investors say they would rather invest in a new investment product created by a large technology firm (e.g., Amazon, Google, Alibaba) versus one created by a financial institution. Among institutional investors, 37% favor a technology firm product.

Millennials are leading the way in using technology to execute their investment strategies, with more than 70% preferring technology platforms and tools over human assistance to help navigate their investment strategy. This compares with just 30% of those 65 or older, the study says. Two-thirds of millennials surveyed have trading accounts, versus 54% of retail investors overall.

Trust in cryptocurrencies has grown, with two-thirds of institutional investors saying they are currently invested in these products, the study says. Government-sponsored pension plans are the most likely to be invested in crypto-assets, followed by insurance companies and sovereign wealth funds. Only 32% of retail investors overall invest in cryptocurrencies.

Retail and institutional investors report different levels of trust in the following: the ongoing value of cryptocurrencies, the companies providing cryptocurrency trading and custodian services and the individuals promoting cryptocurrencies—the least-trusted group of the three, the study says. Trust is significantly lower among retail investors in all three categories than among their institutional counterparts.

Despite the increasing use of and trust in technology, the need for human advising has not changed, the study concludes. Three-quarters of retail investors still prefer a human adviser to a robo-adviser, a number that has remained stable since 2020. A majority of retail investors (58%) value an adviser with “economic intuition” and market experience over one who is data-driven with a highly quantitative skillset.

Values and Personal Connection

Personalization adds to trust, and financial institutions can increase their effectiveness if they understand their clients personally and provide investment products that align with their clients’ personal values and beliefs, the study says. Investment products and strategies that incorporate sustainability preferences will continue to play an important role.

“Trust is a complex topic because it is personal,” the report says. “There are two primary ways to have a personal connection to one’s investments: to have an adviser who understands you personally or to have investments that achieve your personal objectives and resonate with what you value.”

As personalization becomes more important to investors, 78% of retail investors say they would like personalized products or services to help them meet their investing needs, the study says. Of these, 68% say they would be willing to pay higher fees for such products and services. The top three types of personalized products of interest among retail investors are direct indexing, impact funds and personalized research.

The growth of environmental, social and governance investing has also increased trust in the financial services industry, according to 78% of institutional investors. The study found that interest in this area is extremely high, with 100% of institutional investors and 77% of retail investors either interested in or already using ESG strategies.

Retail investors primarily consider investing in ESG strategies to express personal values or to invest in companies that have a positive environmental or societal impact, the study says. Institutional investors are more focused on using ESG investing to achieve higher risk-adjusted returns, but increasingly investors expect both outcomes.

Of note to practicing financial professionals, the study found that three-quarters of respondents feel it is at least somewhat important to have shared values, such as political or religious views, with their financial services providers.

A personal connection can also be built through a strong brand, CFA says. Investors perceive that the firm’s brand is related to organizational culture and values. Relatedly, 82% of institutional investors and 61% of retail investors say that having gender, racial and ethnic diversity in the firms they work with is important to them.