Cannon Financial Institute

Earn My Trust

Trust is not a factor in relationships that can be requested, although it often is (“Trust me”).

Trust is something that is created from the ground up and built upon over time.

When an affluent investor begins a relationship with a financial advisor, trust is a significant issue. The investor needs to know his advisor is trustworthy, however that quality is defined by the investor.

Trust cannot be built overnight. Time is clearly a factor in the investor-advisor relationship and time plays a huge role in the structure of trust.

Spectrem’s newest qualitative study into the investor-advisor relationship, Effective Communication, examines the existence of trust between the two parties and how it affects the way investors invest.

“Similar to the way a person feels toward a trusted physician or lawyer, an investor who  trusts his advisor is able to make the most of the relationship,’’ said Spectrem president George H. Walper Jr. “Because money is involved in the investor-advisor relationship, building trust can be tricky. But no factor in the relationship is more important to either party than the trust factor.”

Using interviews with affluent investors, Effective Communication explains how investors view trust in an advisor, and this is information an advisor can use to improve and develop relations with his or her client investors.

“I do trust him, because you gauge and you chart and you look at how it (the account) is doing,’’ said one investor. “He’s accessible, he sends out a newsletter quarterly, and it\s just a little education on what the market is. He’s trying to help educate me as opposed to (saying) ‘let me handle this for you’”.

The time element in an investor-advisor relationship directly influences the trust factor involved. When Millionaire investors with a net worth between $1 million and $5 million were asked to  place their trust level with their advisor on a sliding scale from 0 to 100, Millennials rated their trust at 64.37 on average, while Baby Boomers rated their trust at 82.89. It is safe to assume Baby Boomers had been with their advisor longer, and time builds trust.

When the same question was asked to wealthier investors, those Ultra High Net Worth investors with a net worth between $5 million and $25 million, the rating was 76.17 for the combined Millennial and Gen X generations, and 85.50 for Baby Boomers.

“I trust my advisor, but I grew up with him basically,’’ said one investor. “He was kind of a family friend. He’s given us good advice over the years and I definitely trust him.”

Advisors need to know that not all investors feel that way about them, even those who have been clients for a long time. There are investors who have long-time relationships with advisors but the trust level remains low, for a variety of reasons.

“When you have a relationship with a financial advisor, you have to take a lot of the responsibility yourself,’’ an investor said. “You have to understand what you are doing and know the ins and outs. I trust him because I know he wants to take care of me, but at the same time I’m always double-checking.”

Asked to select the factors that define “trust’’, 83 percent of Millionaire investors selected the phrase “looking out for my best interests’’, which is also basically the definition for a fiduciary relationship. More than 60 percent said trust is defined as an advisor “being proactive in calling me and telling me important things that pertain to my investments”, which is a communication factor many investors deem vital to an advisor relationship. 

Fewer than 50 percent of investors defined trust as “admitting when they are wrong” (41 percent), “charging fees that reflect the value they provide me” (41 percent), and “no mistakes in the work they perform for me” (37 percent).

All of those responses got a higher percentage of responses from the UHNW investors, perhaps meaning wealthier investors have a higher degree of expectations from advisors.

Were all advisors legally bound by a fiduciary standard, the trust factor would likely be less of a question for investors. The fiduciary duty demands that advisors act in the best interest of their clients at all times and in all decisions. For the time being, all advisors are not fiduciaries, although the recent Department of Labor regulation will change that role for many advisors in the spring of 2017.

However, most investors believe their advisor already acts as a fiduciary. Eighty-four percent of all Millionaires and UHNW investors believe their advisor acts as a fiduciary, although that percent dips into the low and mid 70s for younger investors.

It is not unheard of for advisors to simply ask investors what actions or behaviors they can take to create a sense of trust with the investor. That will serve the relationship much better than just meeting a client for the first time and saying “Trust me”.


Top Takeaways for Advisors

Advisors cannot expect a high level of trust from new clients, even when those clients arrive with referrals from trusted friends and associates. It’s best for advisors not to even suggest new clients trust them, because that will only serve to put investors on edge. Con men ask customers for immediate trust; it’s best for advisors to do their job and hope that trust will come from a job well done.

Trust is not something that should ever be taken for granted. Even long-term clients can lose their trust in an advisor over time. Communication is a key factor in maintaining trust, and can be imperative in situations where a loss or two has occured.

The Department of Labor fiduciary standard for advisors working on retirement accounts will boost trust levels in those clients, but will also create a standard of behavior in investors working on investment not tied to retirement accounts. Prepare for an increased level of expectation among investors.  

Copyright © 2016 the Spectrem Group. All rights reserved. Reprinted by permission.

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Notes:

*According to Spectrem research, there are currently 29.8 million households with $100,000 - $1 million in net worth (not including primary residence, NIPR).  There are 9.1 Millionaire households ($1 million - $5 million net worth, NIPR), 1.21 million Ultra High Net Worth households ($5 million - $25 million net worth, NIPR) and 145,000 households with more than $25 million in net worth, NIPR.  

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