Singapore retail investors have low trust in financial services industry

Singapore

ONLY 10 per cent of Singapore retail investors believe their investment adviser or firm always puts their interests first, compared to the global average of 35 per cent, a study commissioned by the CFA Institute has found.

This puts Singapore as the second lowest among 12 economies surveyed on this question; the lowest rating was found in Hong Kong at 7 per cent.

The survey finds that 47 per cent of Singapore retail investors "trust or completely trust" the financial services industry. This is higher than the global average trust level of 44 per cent, but it is the third lowest score in the Asia-Pacific. The lowest ratings are found in Australia at 31 per cent and Hong Kong at 35 per cent.

The study, "The Next Generation of Trust: A Global Survey on the State of Investor Trust", is designed to help advisers understand the role that credibility and professionalism play in building trust in client relationships and in the industry overall.

Tan Lay Hoon, CFA Singapore deputy president and co-chair of the advocacy committee, said that the Trust Survey provides a roadmap for how the industry can increase its credibility and address investor concerns.

Maurice Teo, a member of CFA Singapore's advocacy committee, said that the survey is a wakeup call for the industry to "come together and build stronger confidence and trust" among investors. "We are surprised to see low trust levels within the financial services industry this year despite ongoing regulatory reforms since the global financial crisis."

The survey involved 3,127 retail investors and 829 institutional investors from 12 economies, including Singapore, US, China, France, Australia, and Brazil. The study was conducted by Greenwich Associates in November and December last year. Retail investors were 25 or older with investible assets of at least US$100,000. Institutional investors were responsible for investment decisions at entities with at least US$50 million in assets under management.

The Singapore segment of the survey found three criteria for retail investors to build a trusted relationship with an investment adviser. These comprise fees that reflect the value they get from the relationship (72 per cent); returns similar to or better than a target benchmark (71 per cent); and the employment of investment professionals with credentials from respected industry organisations (66 per cent).

Trust was consistently reported as the greatest determinant in the selection of a financial adviser. About 37 per cent of respondents said that the most important attribute is for advisers to be trusted to act in clients' best interests. This was rated higher than the ability to achieve high returns (22 per cent).

The top reason to switch firms and advisers was lack of communication and responsiveness (59 per cent), ahead of underperformance (56 per cent), data or confidentiality breach (36 per cent), and increase in fees (34 per cent).

Only 49 per cent of Singapore investors said their adviser is very accessible for questions or concerns, compared to 75 per cent globally.

Many retail investors fear a financial crisis; 42 per cent believe one is likely to occur within the next three years. A low percentage (41 per cent) believe their advisers are well or very well prepared to handle the next crisis. Singapore investors were also the most sceptical on market fairness; 54 per cent believe they have a fair opportunity to profit in capital markets, compared to 69 per cent globally.

Providend chief Christopher Tan said the relatively low trust level may be due to three "Cs": Compensation as commissions create a conflict of interest; competence as most advisers are trained more in product knowledge rather than advisory; and that advice is typically not comprehensive. "Consumers' experience with financial advisers is usually one of being product pushed. This caused consumers to believe that advisers do not put their interests first."