Singapore retail investors' trust in financial institutions falls

Singapore

SINGAPORE retail investors' trust in financial institutions eroded significantly over the past two years, a survey by the CFA Institute shows.

The proportion of those who trust the financial industry (36 per cent) dropped 11 percentage points from the previous 2018 survey, where trust level stood at 47 per cent. This was the biggest drop globally among 15 markets surveyed.

In contrast, the average trust level globally was 46 per cent, and 49 per cent in the Asia-Pacific (Apac).

CFA Institute's report, "Earning Investor's Trust: How the Desire for Information, Innovation and Influence is Shaping Client Relationships", is based on a survey of 3,525 retail investors and 921 institutional investors across 15 markets globally in October and November 2019. Retail investors surveyed were aged 25 or older, with investible assets of at least US$100,000, except in India where the minimum was 500,000 rupees (S$9,163).

Institutional investors included individuals responsible for investment decisions with at least US$50 million in assets under management.

Tan Lay Hoon, president of CFA Society Singapore, said: "The decline in trust levels in Singapore is disappointing. For the past couple of years, we have been working to raise awareness of ethical conduct in the community. We will continue our work in this area, focusing on client-facing professionals, to help strengthen investors' trust."

Nick Pollard, managing director Asia Pacific of CFA Institute, said: "Trust in the investment management industry during this challenging time is more valuable than ever. Investment professionals who understand and navigate the layers of investor trust will be better equipped to serve their clients and demonstrate how the investment industry can better serve society."

Four focus group discussions were held in May and June this year to gain further insights into survey findings. Participants suggested that the drop in investor trust could be due to disillusionment over instruments such as perpetual securities of certain names which plunged in value. The Monetary Authority of Singapore also published its inaugural Enforcement Report last year, detailing action against errant advisers. On fees, participants believed high fees raise expectations of returns. Covid-19 is also expected to exacerbate the trust deficit as returns from risk assets turn negative.

The survey found that Singapore retail investors believed transparency among financial institutions falls short. Singapore respondents were the least optimistic about the general transparency of their financial advisers (17 per cent), compared to 53 per cent globally and 50 per cent in Apac.

Just one in five (19 per cent) said their financial advisers were transparent when it comes to the impact of market events (vs 47 per cent globally and 46 per cent in Apac), and when it comes to fees.

The majority (66 per cent) ranked retirement as their number one investment goal in 2020 compared to 57 per cent in 2018.

Seven in 10 respondents said they were confident that "state-sponsored financial benefits" for old age will payout as promised. But only 52 per cent trust that their investments would provide enough wealth so that they would not need to work past their desired retirement age (vs 77 per cent globally and 75 per cent in Apac). Singapore's CPF Life provides an attractive annuity income in retirement, and is a building block of retirement plans.

Only the Japanese (49 per cent) were less confident than Singapore investors about having enough for retirement.

Singapore retail investors value access to technology (54 per cent) more than access to humans (46 per cent) in the area of investment management.

However advice is still seen as the domain of humans, with 49 per cent saying they trust recommendations from a human over a robo-adviser. Thirty-eight per cent trusted both equally, and 13 per cent preferred a robo-adviser.

Only 25 per cent felt their investment firms would be very well or are well prepared to manage their portfolios in a financial crisis, compared to 41 per cent in 2018.

Four in 10 (39 per cent) said they were currently very interested in ESG (environmental, social, and governance) investing, and the same proportion indicated potential interest in the future.

Of those who were interested, about 57 per cent were motivated by the desire to express personal values or make a positive impact, compared to 19 per cent who were driven by expectations of higher risk-adjusted returns. One in four cited both objectives.

Among those with a values objective, 66 per cent were willing to sacrifice some return in exchange for meeting the values objective.