RIA Compliance Blog
The latest financial debacle has done more than drain retirement accounts, it has caused investors to lose faith and trust in their financial advisers.
Investors are encouraged to plan for the future. Common wisdom dictates that someone who knows the business, an “expert,” is the best one to turn to for advice. During the 1990s when times were good investors could not lose with the market climbing ever higher. Then came, in succession, 9/11, the housing bubble, the crash of 2008 and the resulting financial scandals in brokerages large and small.
This was apparently a real wake up call to investors. A recent survey reveals that, as a result, over one-half of all investors fear that their financial advisers are taking unfair advantage of them!
In an article published in Investment News, Jessica Toonkel recently examined and reported on a study done by Hearts and Wallets’ Quantitative Panel 2010. She made some interesting discoveries concerning the current mindset of investors. Among them is that there is so much mistrust of financial advisers that 54% of the respondents to the survey now describe themselves as “self-directed” compared to 29% in 2008. For pre- and post-retirees, the percentage of actual self-directed accounts showed an increase of 2% since 2008. The writer concludes that the idea of being self-directed is more an expression of a need for more control than actual solitary decision-making.
Mistrust follows primarily from a lack of understanding of what is going on with investments. Investors would prefer to make their own decisions but do not have the expertise. Accordingly the study found that seven out of ten investors still use financial professionals. One-third of investors who use full-service investment firms think of themselves as their primary source of investment advice.
Trust can be restored if advisers and firms take the time to improve communications with their clients. Of course, all advisers are aware of the extra hand holding and counseling they have had to engage in due to the market swings. But those advisers who go the extra mile in explaining investments, market movements, and other factors during these times will be the ones to benefit from a restoration of trust that could even endure the next downturn.
Parker MacIntyre provides legal and compliance services to investment advisers, broker-dealers, registered representatives, hedge funds and issuers of securities, among others. Our regulatory practice group assists financial service providers with the complex issues that arise in the course of their businesses, including compliance with federal and state laws and rules.