It’s not exactly controversial to state that the financial advice profession has a trust issue. The problem is particularly acute in countries like the US and Australia, where advice firms are still financially incentivised to sell specific products.
But even in countries like the UK and the Netherlands, where commission payments have been banned, there are still doubts in people’s minds as to whether advisers truly have the consumer’s interests at heart.
The UK regulator, the Financial Conduct Authority, recently interviewed 13,000 people about their personal finances for a report called Financial Lives. Just 39% of them said they trusted financial advisers to act in the best interests of their clients.
There is, however, a growing number of advice businesses around the world who are breaking the mould and deliberately setting out their stall as firms that people can trust. Indeed I work with some of them myself. What’s more, in my experience, it’s just those firms who are currently enjoying the fastest growth.
So, how can financial advice and wealth management companies create higher levels of trust? Well, a book published earlier this year — The Trust Mandate by behavioural science experts Herman Brodie and Klaus Harnack — provides some possible answers.
Our decision to trust someone, say the authors, is based on two independent judgements about the trustee. The first judgement is about competence. In other words, does this person have the skill, resources and so on to deliver good outcomes for us?
But the second judgement, say the authors, is actually far more important. It’s all about the other person’s intentions towards us. Do they care about us? Do they genuinely want the best for us? Or, given the opportunity, would they use their competence to further their own interests ahead of ours?
Doctors, who generally command a high level of trust, are able to focus on satisfying that second requirement; after all, most patients take it for granted that they’re competent. It’s the extent to which doctors care — asking patients how they are, listening to them carefully, showing concern and so on — that determines how much trust is placed in them.
On the other hand, say Brodie and Harnack, financial professionals often focus too much on trying to demonstrate how clever they are, and not enough on showing that they care.
Charles Morris, Chief Investment Officer at Newscape Capital Group, hits the nail on the head in his review of The Trust Mandate when he says that too many firms “ooze competence but lack warmth”. Far from making firms more trustworthy, he says, “big watches, showing off superior intelligence and bragging about past winning trades put clients off”.
Simply put, clients care more about how much financial advisers care than how much they know, and firms need to be better at conveying their good intentions. To quote from the book, "one additional unit of warmth will bring (firms) closer to a high-trust relationship than one additional unit of competence”.
You would expect me to say this as a content marketing consultant, but the best way to show that you care is to produce and share regular content that reinforces that message. Firms can steal a march on their rivals by showing, for instance, that they’re serious about fee transparency, and not dressing up the data to make their past performance look better than it actually is.
Brodie and Harnack, say that advisers and wealth managers that succeed in building trust can expect to win more businesses. They argue, too, that clients are more likely to stand by a financial professional they trust during periods of underperformance. Apparently they are even willing to pay higher fees.
It may be a long time before advisers enjoy the sort of trust commanded by doctors. But there’s plenty they can do to start closing the gap.
ROBIN POWELL is the founder and editor of Adviser 2.0. A freelance journalist, he runs Regis Media, a specialist content marketing consultancy for financial advice firms around the world. You can follow him on Twitter and on LinkedIn.