WHAT DO INVESTORS WANT?Jonathan A. Boersma, CFAHead, Professional StandardsExecutive Director, Global Investment Performance Standards

WHAT KEEPS INVESTORS UP AT NIGHT?Risk

- Which risks?• Market risk• Currency risk• Country risk• Compliance risk• And the number one concern of institutional investors is…

HEADLINE RISK!

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ONE OF THE BIGGEST CHALLENGES FOR PRIVATE WEALTHPublished Sept. 23, 2016

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Source: 521 respondents to the CFA Institute Newsbrief pollFor further analysis see Trust Deficit: Overcoming Wealth Management Hurdles by Shreenivas Kunte, CFA

OVERVIEW

The First Time the CFA Institute worked with Edelman Trust Barometer group, to investigate trust within the investment community. Surveying retail investors and institutional investors around the world, we examined how much they trust different branches of finance. This Time CFA Institute looked deeper at what

investors want from their investment advisers and what actions will help investment advisers build loyalty with investors.

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KEY INSIGHTS

1. Trust Levels Are Low

2. Trust Impacts the Entire Life Cycle of a Client Relationship

3. The Huge Gap: What Investors Want vs What Firms Deliver

4. Transparency Is Key to Loyalty: When and How

5. The Bottom Line Value (and Potential) of Trust

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INVESTORS LACK TRUST IN FINANCIAL SERVICES

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77%

61%RETAIL

47%

57%INSTITUT-

IONAL

51%GENERAL

PUBLIC

TECHNOLOGY

FINANCIALSERVICES

MEDIA

Source: CFA Institute Trust to Loyalty Survey 2016

How much do you trust businesses in these industries to do what’s right?

TRUST MATTERS WHEN HIRING AN INVESTMENT MANAGER

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34%

21%14% 14%

9% 9%

27%23%

11%17%

9%13%

Trusted to act inmy best interest

Ability to achievehigh returns

Recommendedby someone I

trust

Commitment toethical conduct

Amount/structureof fees

Compliance withindustry best

practices

Which of the following is most important when making a decision to hire an asset or investment manager?

Institutional InvestorsRetail Investors

Source: CFA Institute Trust to Loyalty Survey 2016

TRUST TO LOYALTY: WHAT REALLY MATTERS TO RETAIL INVESTORS

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80%

79%

73%

73%

73%

FULLY DISCLOSES FEESAND OTHER COSTS

HAS RELIABLE SECURITY MEASURES TO PROTECT MY DATA

CLEARLY EXPLAINS ALL FEES AND COSTSBEFORE THEY ARE CHARGED

GENERATES RETURNS SIMILAR TO OR BETTER THAN OTHER FIRMS

PROTECTS MY PORTFOLIOFROM LOSSES

Source: CFA Institute Trust to Loyalty Survey 2016

35%49%

36%47%

34% 32% 35% 29% 32% 26% 25%

16%

30%

26% 11%20% 19% 11% 16% 10% 14%

5%

51%

79%

62% 59% 54% 50% 46% 45% 42% 39%30%

Total RetailInvestors

IndiaRetail

USRetail

FranceRetail

ChinaRetail

CanadaRetail

GermanyRetail

UKRetail

Hong KongRetail

AustraliaRetail

SingaporeRetail

Extremely likely Very likely

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How likely are you to recommend an Investment Firm you work with to others?[Retail Investors; % “extremely/very likely”]

LOYALTY: HALF WOULD RECOMMEND THEIR CURRENT FIRMBut few say “extremely” likely

Source: CFA Institute Trust to Loyalty Survey 2016

36%

21%13%

6% 5% 5% 4% 2% 3%7%

My personalfinancialadviser

Onlineresearch

Friends andfamily

Investmentnewsletters

Media,including print,TV and radio

Academicexperts/books

My employer'sretirement plan

provider

Social media Other I don't get anyinvestment

advice

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Who do you trust most to give you investment advice?

• Globally, retail investors are most likely to cite a personal financial adviser as their most trusted source for investment advice; online research is also a key source

WHO DO RETAIL INVESTORS TRUST FOR INFORMATION?

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How important are attributes in the following categories vs. how well are investment firms delivering on these attributes?

[Retail Investors]

Largest Gaps

MAJOR GAPS BETWEEN WHAT IS IMPORTANT TO INVESTORS AND SATISFACTION LEVELS

Clearly explains all fees and costs before they are charged -31 pts

Protects my portfolio from losses -31 pts

Fully discloses fees and other costs -30 ptsGenerates returns similar to or better than a target

benchmark -29 ptsCharges fees that reflect the value I get from the

relationship -29 ptsIs forthright about disclosing and managing conflicts of

interests -28 ptsGenerates returns similar to or better than other firms (in

comparable products) -28 pts

Source: CFA Institute Trust to Loyalty Survey 2016

LOYALTY AT RISK: ABOUT A THIRD OF INVESTORS EXPECT A FINANCIAL CRISIS IN THE NEXT 3 YEARS

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Tota

l Ins

titut

iona

l

Tota

l Ret

ail

U.K

.

U.S

.

Can

ada

Aus

tral

ia

Chi

na

Sing

apor

e

Hon

g K

ong

Ger

man

y

Fran

ce

Indi

a

Very likely Extremely likely

Retail Investors

How likely it is that there will be another financial crisis within the next 3 years?

33%29%

19%25% 25% 26%

31% 31% 32% 34%

46%

59%

Source: CFA Institute Trust to Loyalty Survey 2016

ONLY HALF OF INVESTORS SURVEYED THINK THEIR INVESTMENT FIRMS ARE WELL PREPARED FOR A CRISIS

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How prepared do you think your investment firm(s) are to manage your portfolio through a financial crisis?

Total Retail InvestorsTotal Institutional Investors

52%Very well

or well prepared

49%Very well

or well prepared

12% Very well prepared

11% Very well prepared

40% Well

prepared

38% Well

prepared

Source: CFA Institute Trust to Loyalty Survey 2016

Total Retail InvestorsCanada

USAustralia

UK France

Germany Hong KongSingapore

ChinaIndia 64%

55%50%

40%37%

31%31%28%27%

19%38%

36%45%

50%60%63%

69%69%72%73%

81%62%

THE ROLE OF HUMAN GUIDANCE VERSUS TECHNOLOGY

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In 3 years’ time, which of the following do you think will be more important to you?[Retail Investors]

Having a person to help navigate what is best for me and execute on my investment strategy

Having access to the latest technology platforms and tools to

execute my investment strategy

Source: CFA Institute Trust to Loyalty Survey 2016

THE YOUNGER THE INVESTOR, THE MORE THEY WANT TECHNOLOGY VERSUS HUMAN GUIDANCE

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In 3 years’ time, which of the following do you think will be more important to you?[Retail Investors]

Having a person to help navigate what is best for me and execute on my investment strategy

Having access to the latest technology platforms and tools to

execute my investment strategy

Total Retail Investors

25-34 years old

35-44 years old

45-54 years old

55-64 years old

65+ years old 24%28%

38%45%

52%38%

76%72%

62%55%

48%62%

Source: CFA Institute Trust to Loyalty Survey 2016

TOP FIVE REASONS CLIENTS LEAVE

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Underperformance Increases in fees

Data or confidentiality breach

Lack of communication & responsiveness

Regulatory sanction

Source: CFA Institute Trust to Loyalty Survey 2016

CFA INSTITUTE CODES AND STANDARDS

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Asset Manager Code of Professional Conduct (AMC)

Global Investment Performance Standards (GIPS®)

ASSET MANAGER CODE

Creates a strong reputation for a firm’s values that can help retain and attract clients

Ensures the firm can compete for allocations from asset owners asking for AMC compliance

Provides a communication tool for firms to demonstrate their commitment to ethical practice

Ensures that the firm is complying with global best practices in safeguarding client interests

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OPEN LETTER INITIATIVE

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OPEN LETTER

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THE GIPS STANDARDS

An assurance to clients that historical performance is complete and fairly presented

Prospective clients will have a greater level of confidence in the integrity of performance presented

Competitive necessity for institutional mandates

The GIPS standards can evolve to address issues that arise in the dynamic investment industry

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GIPS MISSION STATEMENTPromote ethics and integrity and instill trust through the use of the Global Investment Performance Standards by achieving:

• universal demand for compliance by asset owners, • universal adoption by asset managers, and • universal support from regulators

for the ultimate benefit of the global investment community.

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CELEBRATING 30 YEARS!

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Key Highlights of Firm Notification Data as of 31 December 2015:

• 1608 firms submitted their claim of compliance.

• 86% of the firms have indicated that they have been independently verified.

• A comparison with the Cerulli database revealed that 24 of the Top 25 Global Asset Management Firms claimed compliance with the GIPS standards for some or all of their business as of 31 December, 2015.

Source: Cerulli Associates

CURRENT STATE OF COMPLIANCE

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WHY ARE WE HERE?

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REFOCUSING

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Jonathan A. Boersma, CFAHead, Professional Standards andExecutive Director, Global Investment Performance StandardsCFA Institutejonathan.boersma@cfainsitute.org

jonathanboersma

@jonathanboersma