Journal of Financial Planning: September 2017
Harper Tucker is chair of the Financial and Legal Innovation Practice and vice-president of Authority Marketing for ForbesBooks and Advantage Media Group.
In this year—2017—there is a “crisis of trust.” So says the 2017 Edelman Trust Barometer, an annual global trust survey. Not since the study began tracking trust among the global population have they found such a broad decline in trust in all four key institutions—business, government, non-governmental organizations, and media.
The 2016 survey noted that financial services are the least trusted industry of any they surveyed. With the fall of trust, the majority of survey respondents now don’t believe that the system is working for them. In this climate, people’s societal and economic concerns turn into fears, spurring the rise of populist actions that have played out across the globe. Such is the importance of forging trust among your clients.
When it comes to trust, there are three levels, and financial advisers should know each one in order to be more trustworthy in the eyes of your clients.
As the chair of financial and legal innovation at ForbesBooks, and as a former financial coach, I’ve spent a lot of time focusing on the issue of trust. Trust is the foundation of the financial adviser–client relationship. We all know that. It’s particularly crucial when somebody is in a vulnerable position and along with family and health, finances are among the most vulnerable areas we have.
Trust is a powerful intangible asset, defined differently by each client. Allen Harris, CEO of Berkshire Money Management Inc., said that when it comes to the adviser-client relationship, trust is sometimes a too-easily-earned commodity. Clients want to trust their adviser and sometimes do so unquestioningly.
“Unfortunately, financial advisers don’t have to do much to earn that initial trust,” Harris said in a recent interview. “The client needs help and believes that someone with a shingle has their best interest at heart.”
Trust in Know-How
A Knowledge@Wharton special report, “Bridging the Trust Divide,” looked at three levels of trust between advisers and clients. The first is trust in know-how. Investors are looking for someone whose competence inspires trust. This first level addresses the question, “Do you know what you’re doing?”
“Many people find advisers by way of referral, so they feel they can trust the adviser because someone else trusts them,” Harris said. “But why did that first person trust the adviser? Maybe the adviser did something to earn that trust, but maybe not. Clients get lucky a lot, because most every adviser is a good person who means to do good. But like in any profession, that’s not always true. So the client rationalizes trust by a gut feeling, a referral, or a slick brochure.”
Trust in Ethical Conduct
The second level is trust in ethical conduct. This level addresses the question, “Do I trust you not to steal money from me?”
“If you are trying to protect from embezzlement, that’s easy,” Harris said. “You want a publicly held, highly regulated, closely scrutinized custodian of your assets. Then the client always has the access to and the ability to view their money.”
If the client is trying to protect herself from malpractice, one big problem is that the SEC and FINRA do not allow investment performance to be a consideration in complaints against an adviser. Don’t get me wrong—investment performance isn’t the thing that should be a deciding factor, but it should be a benchmark to be sure clients make money when the market goes up but also that the adviser is proactive in protecting the portfolios during down times. That’s the type of referral you really want.
Trust in Empathetic Skills
The third level of trust is trust in empathetic skills. This level addresses the question, “Do you care about me?” There is no formula for this one. CNBC sites a study released by the CFA Institute that shows that soft skills—typically things such as relationship building and interpersonal communication—will be more important than technical skills in the coming years.
These attributes—a proven track record, an ethical reputation, and sincere empathy—inspire trust on all three levels. For financial advisers, trust is not simply a nice thing to have, but a critical strategic asset.