Advisors and Technology Can Restore Trust
Which industry do Canadians rank among the least trustworthy? According to the2014 Edelman Trust Barometer, Canadians have fairly low confidence in the overall financial services industry, with a vote of only 57%. This figure decreases to 55% with regard more specifically to asset management. Yet, research by the CFA and Edelman shows that when selecting an investment professional, investors care most about whether they can trust him/her to act in their best interest. Achieving high returns was cited only half as often and fee amounts only one-fifth. However, for a long time, people believed that high returns were what mattered most to investors.
In the coming years, the primary challenge for the financial services industry will be to enhance trust, which has been greatly shaken in the recent past. This challenge is significant given services are intangible and as a result difficult to differentiate from one provider to another. Thus, services can only be evaluated once they have been rendered. And as investment professionals provide a service whose future gains are difficult to predict, investors' risk perception is magnified.
While the finance industry is having difficulty generating trust, the Trust Barameter shows that Canadians trust the technology industry more than any other, with a vote of 74%. According to Edelman, the tech sector has earned this trust by being a transparent, innovative and reliable steward of personal information.Thus, the financial services industry can greatly benefit from incorporating technology into its services in order to make them more tangible to investors.
PwC also suggests that financial services companies can benefit from collaborating with proven technology companies since the general public places a high degree of trust in the latter. "Technology will play a key role in cost efficiency by 2020, providing stronger investor management and client relationship management capabilities," reports PwC Asset Management 2020, while adding "technology is a necessary cost, reducing overall asset management costs to asset management firms, particularly when using outsourced technology solutions." This trend is also seen within wealth management firms. With plans to outsource more of their technology infrastructure, they regard improving client relationship management software, portfolio management and investment advice tools as priorities for supporting advisors, according to the PwC Wealth Management Survey.
Having steadily built their credibility over the years, established technology firms who are working in close partnership understand the issues facing financial institutions. Their solid foundation allows them to reinvest a significant portion of their revenues into research and development, which are very important in an environment of constant innovation. "Only the providers offering the best technology, and those on a sufficient scale to keep investing in new developments, will survive."
Moreover, proven technology firms can help financial institutions align technology with their business growth priorities, quickly adapt to changing client demands, and comply with increasing regulatory requirements. Furthermore, today's technology enables remote access to information, integration with third-party solutions for enriched data access and easy interface with corporate solutions. Advanced technology can increase the client experience, providing investors with a holistic view of their assets-a feature that is particularly important for high net worth investors.
A sophisticated technology will enhance the credibility of investment professionals by providing them with reliable tools that improve transparent and flexible business practices. This is very important, since credibility is one of the only quality-related criteria that can be evaluated before receiving a service.
Additionally, as the quest for differentiation and operational efficiency through technology continues, "the demand for a seamless, integrated, and tailored solution for each customer will drive technology for asset managers in the future. There will be an emergence of strategic technology activities, hence, advanced technology tools will enable investment advisors not only to demonstrate their credibility, but also their value in offering personalized advice and solutions.
Financial services companies can carve out a competitive advantage through their client relationships as service brand perception is influenced by the quality of a company's relationships, services and reputation. According to PwC, "Going forward, trust, reputation and brand will all play a greater role in client propositions and client perceptions of value".A brand assures customers of consistent quality services, which is extremely important when offerings are based on experience and trust, as in the financial services industry. It is therefore crucial that companies providing financial services build a trusted brand.
How, then, can the financial services industry restore investor trust? Without a doubt, it must call on proven technology providers. Financial advisors must also take on a bigger role because they are the ones who establish trusting relationships, create lasting connections and support the industry.
The value of financial advisors is priceless. They make a difference in investors' lives, they empower them to achieve true financial independence, and with every interaction with their clients they build trust.