Morningstar India recently concluded an online survey to gauge the gap between investor expectations and what advisers perceived to be investor expectations.
The results of the survey were quite illuminating.
What was not surprising was the fact that most individuals do not approach professionals for financial advice (35%). They rely on their own knowledge or seek the help of family, friends and colleagues (15%). The media also plays a fairly important role in their decisions (21%).
The bulk of advisers were convinced that this was so because individuals have either had a bad experience with financial advice in the past or they simply do not want to pay for it.
Investors, on the other hand, had varied responses to this. Most of them (28%) preferred to be in control of their own finances; on the lower end of the spectrum, some felt they could do a better job (16%).
What was surprising was that investors were not averse to paying for advice. In fact, 42% of the investors surveyed stated that they were willing to pay for advice while another 42% were open to it. If investors are willing to pay for advice, what is it they really want? Our survey tells us that they want quality advice (41%) from a financial adviser they trust (34%).
The results of Morningstar India survey can be viewed here: The Advice Gap.
On the similar lines, Morningstar UK conducted a survey earlier this year to understand what it is that investors expect when they look to an adviser. The survey found that for more than half the respondents, the most important factor when choosing an adviser was trust. Cost came third on the list followed by past investment returns.
When asked why they were not willing to pay for professional financial advice, the reasons were wanting to be the one in control of their own finances (29%) with the second most popular answer being that consumers think they can do a better job on their own (22%).
Last year, the CFA Institute & Edelman Investor Trust Study polled investors across the US, UK, Hong Kong, Canada and Australia. The study was based on the feedback received by 1,604 retail and 500 institutional investors.
When asked what was most important when making a decision to hire an investment manager, investors ranked “trusted to act in my best interest” as most important (35%). Another 17% stated that commitment to ethical conduct mattered most to them. If you combine these two factors of trust and ethics, you will see that it is the most important thing to more than half of the respondents. The ability to achieve high returns was most important to just 17%, while, surprisingly, the least rated was the amount/structure of fees (7%).
All these surveys throw some important light on the investor-adviser relationship. While all along many have been of the opinion that investors are reluctant to pay for advice, the truth is that the bulk of investors are not averse to it. They are actually open to paying for advice, if they can trust the person who is responsible for that advice.
Worth noting is that based on Morningstar India's survey, trust falls second to research-based and quality advice.