Investment professionals have lost the trust of consumers. They must work hard to earn it back, writes RICHARD BRANDWEINER.
I recently caught up with some of the CFA Institute’s Board of Governors, as well as a number of CFA society leaders from across Asia Pacific, at the Asian Society Leaders Conference in Thailand. There was much discussion around the new strategic plan that the CFA Institute is currently developing, one which hopes to take the Institute forward over the next five years.
As part of the strategic planning process, a group led by the venerable Roger Irwin, formally chair of the Thinking Ahead Group at Towers Watson and now a member of the CFA board, identified five major industry trends that should inform the strategy. They were: the lack of trust now given to our industry, the effects of continuing globalisation, increasing complexity and changes in technology, increasing impact of regulations and the need for additional investor education.
All of these are interesting, but I wanted to touch on the challenge of trust in particular. I have observed that our colleagues overseas are very much more aware of this issue than we seem to be in Australia and yet it remains a major hurdle for us to overcome as well.
The problem arises because there has been a marked difference between the reality of investment returns experienced by consumers and the expectations that they have been given, and continue to be given going forward. Perhaps even worse than this gap between reality and expectations is the fact that the reality (over what is now a long period of time) has not been able to deliver the outcomes consumers have actually needed.
Of course, we know that markets are cyclical and that this could be the bottom- when one looks at rolling 10 year periods, investment returns have not been so bad. Unfortunately, that is little comfort to large groups of investors that either invested at the highs or were forced to draw down at the lows.
The investment industry should be very concerned about the lack of trust that is now apparent. We can clearly see the impact domestically in the volumes flowing to cash and term deposits and it could easily get worse. Many of the financial advisers I have spoken to recently are concerned about the “capitulation trade” – clients who have hung in there during the last few years, accepting the rule that it’s “time in the market, not timing the market” that matters, and who have finally had enough.