How a company can gain the trust of investors
We live in uncertain times. The current socioeconomic scene is subject to rapid changes and turbulent market conditions. This is due to investors having serious difficulties valuing assets.
This context results in a clear need to build up confidence, which is the foundation for the most solid investment decisions. Much effort is needed to gain trust, but it can vanish very easily. Three main pillars can sustain confidence:
• Information, the basis for every decision-making process.
• High levels of innovation, a key indicator of a company’s capacity to meet investors’ needs.
• Influential capacity, or the extent of control that investors can exercise.
In short, those investors that have built up confidence with companies and the advisers acting on their behalf will be much better placed to overcome the current picture of market disruption.
Uncertainty amongst institutional investors
A recent study involving 3,525 retail investors and 921 institutional investors across 15 different international markets alerts to a deferred deficit of trust in the investment sector as a general trend. 47% of respondents amongst institutional investors in state, government or defined benefit pension plans say it is very likely that their fund will need to lower their profit targets in the next 10 years.
65% of institutional investors say they have high levels of trust in the financial services industry. It is important to highlight that innovation and technology can both be trust-fostering factors for investors. About two thirds of institutional investors are more confident in companies making a wider use of technology.
Environmental, Social, and Governance (ESG) products and strategies keep on growing. 73% of institutional investors would be willing to give up a part of their profits if they could realise values with which they empathise.
Which criteria do institutional investors follow?
To build up trust and stronger relations to help them cope with the most challenging market cycles, investment firms and individual investors must focus on long-lasting instruments, i.e., safeguarding credibility, earning credentials, meeting industry standards, continuously enhancing organisational know-how and skills, etc.
These three factors have an influence on how wholesale investors select fund managers:
• Profitability (48%).
• Long-term relations with management firms capable of understanding their goals and business challenges (41%).
• The management firm’s capacity to develop alongside their own needs (40%).
Retail investors are focusing on technology and medicine
46% of retail investors show high levels of trust in the financial services industry. There are, however, significant discrepancies between those who use advisers and those who don’t. Retail investors with a dedicated adviser show much higher levels of trust in financial services (57%) than those without (33%).
Outside the financial services sector, retail investors show high levels of trust in the technology (60%) and medicine (68%) sectors.
It is important to stress that an overwhelming share of investors are still seeking advice from specialist firms, in contrast to a minority relying on Robo-advisor technology.
These are the most decisive confidence-building factors amongst retail investors:
• Fees are still playing a major role: 65% of institutional investors renegotiated their advisers’ rates last year.
• In much the same way as wholesale investors, 67% of retail investors would be willing to renounce to a portion of their profits in exchange for realising values with which they are sympathetic.
Investors’ trust should not be left to chance
In conclusion, a company willing to generate trust amongst investors will be compelled to actively engage in a strategy that focuses on clear goals.
Profitability continues to be a key element on the list, but there are further intangible values gaining momentum amongst institutional and retail investors. This includes innovation, the capacity to build long-standing relations and setting environmental & sustainability targets.
Manuel Urrutia.
Head & CEO of Confianz