A mistake can be easily forgiven; but a breach of trust may live on for years. This is the harsh reality advisors faced in the wake of the 2008 financial crisis. But with the benefit of hindsight, one indelible lesson that should guide our profession into the future is that trust must be embedded in every firm’s organizational DNA. Indeed, because driving revenues today can be more a function of retaining clients than acquiring new ones, there’s never been a more compelling business case for putting trust at the center of every client interaction.
So where to begin? A good starting point is to recognize the lingering gap between investor expectations and the level of service delivered by firms. This isn’t necessarily a knock against our profession, however. While there’s always an opportunity for improvement, it’s worth acknowledging that the wealth management landscape has been changing—and the wants and needs of investors have changed right along with it. Consequently, think of this as an opportunity to find more concrete and inventive ways to build trust and deliver the quality of service that investors expect and deserve.
Credibility + Professionalism = Trust
When it comes to making progress, we often hear the refrain, “There’s a long road ahead.” The underlying assumption here is that progress has a clear beginning and end—while the reality is that building trust is a continual journey.
To develop a roadmap for building trust, CFA Institute recently examined the shifting perceptions and attitudes among almost 4,000 retail and institutional investors worldwide. Among the findings in The Next Generation of Trust study, we discovered a framework we like referring to as the trust equation: credibility + professionalism = trust. To better illustrate how the intersection of credibility and professionalism can help foster trust among your clients, we’ve outlined eight steps that firms can use to reinforce their value as a trusted source of investment advice:
1. Maintain strong brand identity and follow through on brand promises. The financial services industry is predicated on the trust that firms will act in the best interest of their clients. And one of the first things investors see is a firm’s brand. What is your firm known for? What types of values does it promote? These considerations shape perceptions of your credibility. In fact, our trust study found that 46 percent of investors see brand as an important determinant of trust, versus only 33 percent in 2016.
2. Employ professionals with credentials from respected industry organizations. There’s something to be said for investment professionals who demonstrate their dedication by acquiring professional credentials. Retail investors agree—with more than 70 percent surveyed saying they believe it’s important for investment professionals to have credentials.
3. Stay focused on building a long-term track record to demonstrate competence and deliver value for money. Investors are becoming more price sensitive when it comes to working with advisers. In fact, more than 70 percent of retail investors surveyed feel strongly that fees should reflect the value they get from their relationships with their investment advisers, but only 41 percent of respondents are currently satisfied. Stay focused on the big picture; and help your clients do the same.
4. Adopt a code of conduct to reinforce your firm’s commitment to ethics. In a recent speech in Philadelphia, SEC Chairman Jay Clayton acknowledged that he regularly sees investors being victimized by bad actors in the financial services industry. Consequently, professional ethics are becoming even more essential for maintaining trust—with a large number of investors worldwide saying they’d have more confidence in investment management firms that adhere to a voluntary, industry-wide code of conduct.
5. Improve transparency and clarity regarding fees, security, and conflicts of interest. Just over 80 percent of retail investors worldwide indicate that having fees and other costs fully disclosed to them is important in their relationships with investment professionals.
6. Use clear language to demonstrate that client interests come first. Words matter—especially when communicating with investors. But there’s still a disconnect in our profession. An overwhelming 80 percent of retail investors want investment reports that are easy to understand, though only 51 percent are satisfied with what they receive. Do your investment reports provide insights that investors care about, or do they read like data dumps? In the words of George Bernard Shaw, “The single-biggest problem in communication is the illusion that it has taken place.”
7. Showcase your ongoing professional development to improve investment knowledge. Investment management professionals of the future will need to draw on a range of skills—including more soft skills. However, having a strong investment management IQ will always be a prerequisite for delivering value to your clients—even in a world with inexpensive indexed products that still call for wise choices around asset allocation decisions. In fact, almost 80 percent of investors worldwide say they would have more trust in their adviser if the investment staff took time for continuing professional development.
8. Demonstrate your dedication to the values that clients hold dear. Clients want customized solutions that fit their individual objectives. Moreover, today’s investors want advice that’s woven into a more holistic approach to the management of their wealth, combined with a rich client experience.
Creating A Differentiated Value Proposition
Building enduring client relationships predicated upon trust takes work—and there are no shortcuts. But clearly investors are vocal that factors such as delivering on brand promises, transparency and professionalism evidenced by continuing education are what matters to them. Being explicit about how you are earning credibility and demonstrating professionalism to your prospects and clients positions you to offer real value and engender trust that sustains relationships in dynamic times.
Bob Dannhauser, CFA, FRM, CAIA, is head of Global Private Wealth Management at CFA Institute.