Think a good adviser is hard to find? You're not alone

Despite this year's stock market rally, investors are having a hard time trusting their advisers, according to the Forgotten Investor Survey, a poll of 908 retail investors by State Street Corp. As a group, financial advisers are trusted by a meager 15% of respondents, down from a third of respondents who trusted advisers in a similar survey conducted in 2012. “The core of the problem is that investors don't believe the fees they're paying are commensurate with the return on their investments,” said Suzanne Duncan, global head of research at State Street's Center for Applied Research. The survey results support her hypothesis. The adviser capabilities most important to investors were, in order of importance: performance, unbiased and high-quality advice, and transparency. When asked about what advisers are failing to deliver, respondents said performance, unbiased and high-quality advice, and transparency — a mirror image of their positive expectations. As for their portfolios, investors had most assets in cash, with a 37% allocation. That's somewhat of a surprise, given the S&P 500's strong performance (up 18%) during the first half of the year and marks a reversal from a State Street survey conducted last year when the allocation to cash trailed equities. “We spend a lot of time doing behavioral analysis, and this may seem counterintuitive, but any swings — even big upward swings — will create an anxious investor,” Ms. Duncan said. “They're worried that the market will just end up swinging the other direction. Investors can't seem to stomach the volatility.” “It's a severe reaction to loss aversion,” she said, highlighting the frequency of triple-digit upswing episodes in 2013. While this lack of trust and understanding of the finance sector certainly may be a product of Wall Street's well-documented antics, it may also stem from retail investors' lackadaisical approach to their portfolios. Fifty-five percent of survey respondents had never heard of the Dodd-Frank Act, 50% reported spending more time reading free catalogues than their investment statements, and 40% didn't know whether their adviser is held to a fiduciary standard.