Lack of trust in financial services industry deters investors

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A widespread lack of trust in the financial services industry may keep Canadians from achieving their long-term financial goals, warns Beth Hamilton-Keen, incoming chair of the CFA Institute board of governors.

"Investors who do not trust the industry are unlikely to invest" and may be inclined to save less money, Ms. Hamilton-Keen said at an event Wednesday held by S&P Dow Jones Indices in Toronto. "This will result in people having longer working lives, lower quality of life and intergenerational stress."

This lack of trust was evident in a 2013 survey cited by Ms. Hamilton-Keen. According to the CFA Institute & Edelman Investor Trust Study of more than 2,100 retail and institutional investors in Canada, the U.S., Britain, Hong Kong and Australia, financial services sits at the bottom of industries most trusted among clients. When investors were asked which industries they trust to do what is right, only 52 per cent of investors stated they trust the financial services industry. The technology industry was the most trusted, at 67 per cent.

The No. 1 reason investors said they are losing trust and confidence in the financial services sector was the lack of ethical culture within global financial firms, says Ms. Hamilton-Keen, who is also the director of private client management for Mawer Investment Management Ltd.

"Because of that loss of trust, we have seen an increase in regulatory intervention, declining inter-mediation and an increase in non-fee paying assets such as cash and real estate," Ms. Hamilton-Keen said. "We are seeing clients just get out of investing altogether if they don't trust where they are putting their money."

Canadian regulators are now starting to place their focus on investment managers and the need for investors to understand total costs of investing and the performance they receive in return. These changes could present opportunities for wealth managers to strengthen their relationship – and trust – with investors, she says.

"[Regulators] are scrutinizing our culture, our interactions with customers, and our effectiveness in implementing the required regulatory changes," Ms. Hamilton-Keen said. "And that regulatory focus will continue to increase into 2020 and beyond.