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Bridging the Trust Divide: The Financial Advisor-Client Relationship

Report - Finance

Wednesday, 13 August 2008

Bridging the Trust Divide: The Financial Advisor-Client Relationship At one time, financial advice usually came folded into another service, sometimes in the form of suggestions from a tax accountant, more frequently in the form of stock tips offered by a broker-dealer. Often, it was good advice. At times, however, it was conflicted, because moving particular products sometimes took precedence over doing what was right for the client.

Over the last 15 years, that model has changed. First, advances in technology and regulatory reforms led to the rise of discount brokers, making it difficult for the old-fashioned stockbroker to sustain the same fee structure.

Later, partly in response to that assault, the financial services industry looked to develop a more stable and less cyclical revenue stream. This fit in neatly with consumer concerns about conflicts of interest, and has led to a new paradigm in financial advice—the movement toward offering consultative services instead of product pushes and straightforward fee structures rather than complex or opaque ones.

In this report, State Street and Knowledge@Wharton look at how financial advisors are negotiating the boundaries of this evolving relationship. Specifically, the report examines how advisors can:
1. Strengthen relationships by engendering trust;
2. Best communicate the value they bring to their clients given how clients generally perceive value; and
3. Successfully discuss fees with clients.

Conclusion

Ultimately, the financial advisory business is changing and becoming more transparent. Wharton experts, as well as those like Dr. Grubman and successful financial advisors themselves, say that this way of doing business is better for the client as well as the advisor, in that it tends to build a stronger, longer-lasting relationship. But as the State Street / Knowledge@Wharton survey suggests, doing business in this way may require un-learning behaviors and attitudes, and acquiring new methods for communicating effectively and openly with clients. “What is needed,” states Grubman, “is a paradigm shift. And it’s happening.”

In a world where investment solutions and services are becoming increasingly commoditized, experts agree that, for advisors, the extent to which they can act as trusted counselors and educators to their clients will be the real differentiator or measure of value.

And the surest way to build trust, according to Wharton faculty and other industry experts, is by demonstrating through one’s actions and words competence in three critical areas: knowledge, ethics and perhaps most importantly, interpersonal communications.

Visit Bridging the Trust Divide: The Financial Advisor-Client Relationship Website

"According to experts at Wharton and a survey of advisors and clients, trust is the foundation of the advisor–client relationship. Although that might sound elementary, it is evidently overlooked by many advisors. In fact, some advisors take serious risks when it comes to cultivating and preserving it through their communication practices, empathic skills, and competence in discussing what can be awkward topics, like fees or sensitive personal and family issues."

Download Bridging the Trust Divide: The Financial Advisor-Client Relationship

PDF format, 452KB, 21Pages.

Table of Contents:
I. A Matter of Trust 3
Three Levels of Trust 3
Trust in Technical Competence & Know How 3
Trust in Ethical Conduct and Character 4
Trust in Empathic Skills and Maturity 4
How Advisors Can Damage Trust 5
Fuzziness about Fees 6
Transparency in Fees 7
The Risks of Transitioning to Transparency 7
Rationalizing the Fee Structure 8
II. What Advisors Know—and Don’t Know—About Their Clients 10
Key Research Findings 10
Respondent Details 14
III. Advisor Best Practices: Building Trust with the Fee Discussion 15
Four Steps to Success When Discussing Fees 16
Conclusion 19