Trust, in some ways, is at the heart of all financial transactions, and technology can enable and enhance that trust.
How do we know? Because 50% of retail investors and 87% of institutional investors say that greater use of technology in financial services has increased trust in their advisor/manager. That’s one of the key findings of “Enhancing Investors’ Trust: 2022 CFA Institute Investor Trust Study,” the fifth edition of the biennial series.
“Improving Investor Confidence” focuses on the relationship between technology and confidence in finance. It demonstrates that trust in financial services is both seen and unseen: it is the ever-present backbone of financial transactions and the external interface through which those transactions take place.
Greater integration of technology into finance helps establish two types of trust that are essential to investing: “execution trust” and “relationship trust.” The first refers to the knowledge that transactions are safe, accurate and properly managed, while the second describes the added value that investment tools and product customization create for investors.
Technology improves access to financial markets and reinforces representative equality between different market participants. It drives the development of new products and services that open markets to more people and counters the trust divide, or the trust differential between retail and institutional investors, across geographies and demographics, and between retail investors with and without an advisor.
Execution confidence and fundamentals
Confidence in execution drives market participation, and all market participants, regardless of demographics, require it. By fostering confidence in execution, technology bridges the trust divide between all types of investors and helps ensure a level playing field.
As the World Bank observes:
“Fintech can democratize access to finance and the world can get closer to achieving financial inclusion. . . . Fintech has the potential to reduce costs, while increasing speed and accessibility, enabling more personalized financial services that can scale.”
Globally, the first point of entry into financial services is often digital payment providers. In some markets, especially those without traditional banking infrastructure, they are the main mode of transaction. As such, trust in digital payment providers (Apple Pay, Venmo, Alipay, Zelle, etc.) ranked first among all subsectors of the financial services industry in most markets.
Trust digital payment providers*
Note: The exhibit shows the percentage of respondents who select 4 or 5 on a scale of 1 (completely distrust) to 5 (completely trust).
* “China” refers to mainland China.
Retail accounts and apps are further addressing the disparity in access to financial services. The survey found that 71% of respondents believe these tools improve their understanding of investing. Institutional investors are equally optimistic: 89% say they are increasing confidence in financial information. These developments directly influence industry sentiment: Respondents with retail business accounts are more than twice as likely to say they trust financial services than those without.
Relationships of trust and personalization
Trust in the relationship is an additive value that builds on trust in execution and describes what advisors can deliver when they understand, connect and align with a client’s personal values and motivations. As with retail accounts, whether an investor has an advisor influences how much they trust financial services. Of those with an advisor, 69% have high or very high confidence in financial services, compared to 45% of those without an advisor.
Technology can guide how and how often advisors communicate with clients and help them adapt accordingly to provide the right information at the right time for each client. It can also facilitate the development of more tailored products. Ultimately, technology-driven personalization (direct indexing, AI investment strategies, etc.) strengthens the connection between investors and the investment industry.
The demand for these products is high. The survey found that 78% of all retail investors and approximately 90% of those under 45 are interested in more personalized investment products and services.
Percentage of respondents who want more personalized products/services to better meet their investment needs, by age group
Implications for the future
It’s no surprise that the adoption of financial technology is skewed towards younger investors, but as these “digital natives” hold more assets, the integration of technology becomes increasingly integrated into the customer relationship- adviser This influences the way investors participate in the markets in general. For the first time in the Investor Trust series, access to the latest technology platforms and tools was cited as more important (56%) than having someone to navigate and execute the investment strategy (44%).
As reliance on financial technology increases, so does the potential for new providers of financial products and services to enter the market. The survey found that 56% of retail investors would be more interested in investing in financial products created by Amazon, Google, Alibaba and other big tech companies than financial institutions.
Of course, the ubiquity of technology in financial services creates certain challenges. Data privacy is a key consideration. More than one in four respondents (27%) say they are less willing to use online platforms that require entering personal data than they were three years ago. The behavioral effect of technology is another concern: Of survey participants with a retail account, 57% say they increased their trading frequency, while 74% say they believe acting with “ digital hills” will improve your investment/decision-making performance.
Of course, these precautions are necessary reminders that unchecked technology can have unintended consequences. This is why the integration of technology into finance must be approached with intent and oversight to maximize its confidence-building effects in the industry.
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All posts are the opinion of the author. Therefore, they should not be construed as investment advice, nor do the views expressed necessarily reflect the views of the CFA Institute or the author’s employer.
Image credit: ©Getty Images/Ilya Lukichev
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Ryan Munson
