Categories Finance, Research Summary

Wealth management: Who do you trust?

Trust is at the heart of financial advice. It’s like seeing a doctor. You know far less about the complex topic and hence it’s better you toddle over and chat with an “expert”. The question is how much do you trust a financial advisor? Why will you turn over your hard-earned money (or ill-gotten swag) to a Suit?

Binod Shankar CFA

Hit by the shock of the 2008 financial crisis and ongoing scandals around money laundering, rogue trading, rate manipulation, and insider trading, the Financial Services Industry (“FSI”) lost the faith of its key constituents – the clients, investing public.

Post GFC, the FSI was the industry LEAST trusted by the general population, according to the 2013 Edelman Trust Barometer, an annual exploration of trust in institutions, industries and leaders worldwide.  Even among investors, FSI was the least trusted industry, coming behind tech, pharma, F & B, telecom and banks.

So, I was curious when CFA Institute (“CFAI”) brought out the fourth edition of a report titled “Earning Investors’ Trust” in April 2020. CFAI and Greenwich Associates conducted a global survey of 3,525 retail investors and 921 institutional investors.

I reviewed the report, pondered on its implications and these are my thoughts:

Where do we stand now?

The FSI ranks in the middle tier of trust.

I like that. Better than the 2013 results.

However, don’t start throwing confetti. Because when retail investors were asked which following types of people they considered to be more trustworthy, the highest were Doctors (77%) followed by Accountants (42%), Lawyers (29%), Financial Advisors (23%) and Mechanics (22%).  

I agree with the top two but what’s with Lawyers having a 13% lead over advisors? Also, more than three times as many people highly trust doctors relative to financial advisers, who rate on a par with…hold your breath…. mechanics.

I am not contesting the findings, merely shocked at the results. Mechanics? The FSI truly has a long way to go.

Trust varies by markets

And how!

Retail investor trust is highest in India at 87% (up by 16% compared to 2018) followed by China at 69%. Close to the bottom are the UK (33%) and Japan (27%).  

The size and growth in India are most likely due to the rapid economic growth in the past twenty years, bringing with it a burgeoning middle class and increasing disposable income. You also have the financialization of savings with the trifecta of fixed deposits, property and gold being rapidly replaced by stocks. China’s high score is probably driven by similar factors.

One implication? Wealth advisory has huge scope in these two Asian giants.

The use of technology

  • Approximately two-thirds of institutional investors and nearly half of retail investors with an adviser trust their investment firm more because of the increased use of technology.
  • When forced to choose between access to technology or a human, the trend has been for more towards technology. For the first time, retail investors globally have an equal preference for technology and people.
  • Most institutional investors (71%) are eager to invest in funds that employ artificial intelligence (AI) in the investment process.
  • Younger investors are much more likely to say that technology has increased their trust in their investment firm; it is an expectation.

All the above make sense. AI is faster, more efficient and has no emotions so it’s better at finding patterns, in asset allocation and generally in driving innovation, among other things.

Man or machine?

The majority (73%) of retail investors still prefer human advice over a robo-adviser, which is relatively unchanged from 2018.

This is where it gets fascinating.

Once upon a time, robo-advisors were a big threat, the machine that would replace humans. But as with many tech innovations, the fear has been misplaced.

Today, trust in robo-advisers has increased to 27% among retail investors overall, but it still lags trust in private wealth managers (53% among those with an adviser) by a significant margin. Generational differences play a big part, as millennial trust in robo-advisers exceeded 50% and older investors became more distrustful of robo advisers.

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So, people want to use technology in many areas of investing BUT they still prefer a human advisor. The desire for a blend is also evident in retail investors’ response to a question about whether they would prefer a financial adviser that is data-driven and very quantitative (39% selected this) or has economic intuition and extensive market experience (61% selected this).

Financial advisors can breathe a sigh of relief – Investment advice is still primarily the domain of humans and economic intuition and experience are still valued in a financial adviser. But you need to leverage tech.

Also, dig a little deeper and you will find significant regional differences.

34% of Chinese prefer humans over robo-advisors, a big exception to the global preference for humans (73%) which is also seen in India (82%), the US (81%) and the UAE (75%).  Chinese were also more likely to leave an advisor due to “insufficient technology for needs”, compared to Indians and Americans.

The Yanks are weird in that trust in the FSI has declined from 2018 and yet they prefer human advisors.

Institutional vs retail

Institutional investors place greater value on technology and innovation than retail investors do.

Given a choice between two funds to invest in, 71% of institutional investors chose “an algorithmic fund that employs data scientists to use alternative data sources,” while just 29% chose “a fundamental, bottom-up concentrated stock portfolio.”

Also, while 65% of institutional investors trust the FSI only 57% of retail investors with an adviser (and just 33% of retail investors without an adviser) trust the FSI. The reasons are not hard to find- mis selling, high fees, lack of liquidity etc. have all disillusioned many retail investors.


Another interesting finding.

When institutional investors were asked whether they would prefer to get a new product created by a Financial Institution (“FI”) or a large tech firm ( e.g. Amazon, Alibaba, Google), they just slightly favored FIs (52% to 48%). I’d have thought FIs would have been favored more.

This is great news for tech companies and a big opportunity for large tech firms that can navigate regulatory requirements.

Finally, the report also touched upon investor biases.

87% of retail investors say they are confident about their ability to make good investment decisions; this number rises to 92% for those with a financial adviser. Talk about overconfidence bias.

Some things never change.


Binod Shankar is a CFA charter holder who has been based in the UAE for the past 19 years. He is a trainer, blogger, speaker and podcaster and appears frequently on CNBC Arabia as a market analyst. His blogs and podcasts are available on

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