A new study from Chestnut Advisory Group shows that a fund manager’s ability to earn investor trust is more important than their track record, according to a recent article in Institutional Investor.

Chestnut CEO and founder Amanda Tepper said, “Capital flows are all about people,” adding that investors are “not buying a risk-return stream, they are entering into a relationship with you.”

According to the study, the top factors for investors when choosing an asset manager are as follows:

1.      Manager’s level of understanding of the investment process;

2.      Manager’s credibility;

3.      Investor’s understanding of the firm’s risk management;

4.      Clear and consistent communications;

5.      Confidence in manager’s business structure and incentives.

While performance still matters, the study shows that it’s not the top reason investors hire or fire managers. According to Tepper, “managers who establish trust are able to hold on to client money far longer than peers during inevitable performance blips.” She adds that trust generally comes down to a combination of competence and warmth–citing the example of Warren Buffett, who she describes as “the classic embodiment of asset manager strength across these two key traits.”

The study shows that even asset managers with great performance records can damage trust through poor communication with investors. “At worst,” the report states, “investors fear that extremely competent managers many use their skills to benefit themselves at the expense of clients.” The report’s findings underscore that once trust is lost, it’s tough to get back, which Tepper attributes to the behavioral finance theory that the pain of loss is far worse than the joy of a gain.