In the study, Vanguard classifies three types of trust within the advisor-client relationship: Functional trust, emotional trust and ethical trust.
Functional trust is an investor’s confidence in their advisors’ skills, a credential, or in the capabilities of an advisory practice, according to Vanguard. Advisors establish functional trust by creating and executing financial plans, communicating openly with their clients and displaying their qualifications. On average, functional factors account for 17 percent of the overall trust in advisory relationships.
Emotional trust represents the intangible aspects of the advisor-client relationship. According to Vanguard, emotional trust is expressed when clients acknowledge an advisor as an advocate or a source of relief and calm. On average, emotional factors account for 53 percent of the overall trust in advisory relationships.
Ethical trust involves an advisor’s conduct. Clients, regulators and culture establish expectations of correct conduct. Vanguard believes that advisors can instill ethical trust in their clients by eliminating conflicts of interest, charging reasonable fees and always acting in their clients’ best interests. On average, functional factors account for 30 percent of the overall trust in advisory relationships.
Vanguard further broke down trust into 19 attributes representing advisor skills, practices and behaviors that had a statistically significant impact on their clients’ trust. Vanguard’s participants identified “being the client’s advocate” and “acting in the client’s best interest” as the two most important factors that determine overall trust in the relationship, when combined they account for an average of 32 percent of a client’s trust of their advisor.
Functional factors like awareness of market trends, ability to make spot recommendations and being networked within a community accounted for the smallest portions of a client’s trust, together representing an average of 5 percent of the trust in an advisory relationship.
Vanguard conducted a two-phase research process: A series of 18 in-depth qualitative interviews was conducted in November 2015 among investors between the ages of 30 and 75, followed in April 2016 by a survey of 3,955 investors with financial advisors.