Hong Kong, we have a problem.
Only 35% of local investors trust financial institutions in the country.
In fact, Hongkongers are trusting credit card and mortgage providers more than wealth managers, a new study has revealed.
In a survey covering 3,127 retail investors globally with over $100,000 in investible assets, CFA Institute found that the lack of trust was more apparent in Hong Kong than in the rest of Asia, where 50% of the investors now trust financial services.
Hong Kong’s economy and investment sector suffered a blow from the 2008 crisis, which hit asset markets, financial services and trade. Ten years on, trust, together with investment performance, is determining the choice of wealth managers and financial advisers for Hong Kong's investors.
‘Mass affluent and HNWI [high net worth individual] investors in Hong Kong want investment reports that are easy to understand and wealth managers that disclose and manage conflicts of interest,’ said Nick Pollard, managing director, Asia Pacific for CFA Institute.
‘Our research indicates that investors consistently rank trust as the biggest differentiator in hiring a wealth manager and contributes to whether they refer others or expand the relationship with additional mandates,’ he told Citywire Asia.
In fact, as a result, there is a lack of interest in discretionary portfolio management in Hong Kong, noted Pollard. Moreover, there is a clear increase in passive investment preferences.
Underperformance (63%) was the leading reason for investors in Hong Kong to leave their investment firm, followed by lack of communication, insufficient technology and fee increases.
The CFA survey findings revealed that money managers need to hold appropriate credentials, demonstrate a track record and work with a credible company to gain the trust of retail investors.
Moreover, Hong Kong's investors are looking for subject matter expertise, continuing professional education mandated by their firms or credentialing organizations and adherence to a code of ethics.
‘Importantly, [HNW] investors are willing to pay fees that reflect the value of that relationship,’ Pollard said.
Indeed, the amount and structure of fees ranked only fifth in terms of importance in choosing a financial adviser, behind the ability to achieve high returns (31%) and trusted to act in the client’s best interest (29%), among other factors.
Nearly half of the surveyed investors expect a financial crisis in the next three years, potentially in Hong Kong’s housing or mortgage market. However, according to the report, only 25% of Hong Kong’s investors believe their investment firm is well prepared to handle the next crisis, compared with 55% of investors globally.
The findings related to transparency were also not encouraging. Only one-third of the investors said their adviser was very accessible for questions or concerns, with a similar percentage stating their adviser was transparent on fees.
Additionally, a mere 27% of the investors said their financial adviser was transparent about asset allocation and investment decisions.
‘For the investment industry, trust and value are interconnected,’ said Pollard. ‘This is even more important in an era of robo-advice and where Hong Kong investors have an appetite for technology tools and solutions, but still prefer human advisers over robo-advice.’