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advisor’s edge | February 2020 . Volume 23, Number 1
EDITOR’S NOTE
The meaning
of trust is changing
This year’s Edelman Trust Barometer, the global sur-
vey of citizens’ faith in institutions, described a “trust paradox.” Despite strong economic performance and nearly full employment, trust in institutions is sagging.
You may see parallels in the advisory profession. A decade-long bull run has enriched clients, and there’s a lot of good news to share regarding 2019 returns. Yet, the democ- ratization of financial information and a relentless emphasis on fees have impacted client relationships. Online brokerage ads depict advisors as smug, self-interested creeps.
petence is no longer enough. Edelman tweaked its model
for the first time in 20 years to dig into the dimensions of compe- tence and ethical behaviour. Com- petence accounts for just under one-quarter of a company’s trust capital, the report found, whereas ethical attributes account for the rest. Of those attributes, fairness is the most important.
The “ethics shortfall” may occur partly because companies have emphasized competence and performance over their commitment to ethics and integ- rity. This has happened despite changing societal expectations.
“Consumers expect the brands they buy to reflect their
values and beliefs, employees want their jobs to give them a sense of purpose, and investors are increasingly focused on sustainability and other ethical commitments as a sign of a company’s long-term operational health and success,” the report said.
The CFA Institute’s 2018 investor trust survey (its most recent) acknowledged a split similar to Edelman’s barometer when it came to building trust. Investment performance, a potential measure of advisor competence, can’t be guaranteed, then-president and CEO Paul Smith wrote, but “the other actions essential to building trust are very much within the industry’s control.”
Mark Burgess is managing editor at Advisor’s Edge. Reach him at markb@newcom.ca or on Twitter, @marktburgess.
The CFA report’s equation for trust combines cred- ibility (track record, experience and credentials) and pro- fessionalism (competence, knowledge, empathy, putting clients first). Steps advisors can take to improve profes- sionalism include better transparency on fees, conflicts and information security; demonstrating a dedication to the values clients hold dear; and showing clients that you’re continuing to learn and develop as a professional.
An obvious starting point, as clients receive their annual fee statements, is to build trust by being radically transparent about what you’re charging. Trying to ignore fees, or obfus- cating with jargon, will lead clients to assume the worst — and further expose the industry to the caricatures on TV.
Another way to demonstrate professionalism is to tell clients about something you learned at a conference, or a speaker you saw who might interest them. If you’re pursuing a new level of certification, let clients know and explain why it’s important to your practice. This will dem- onstrate that you’re invested in your career and in provid- ing the best service.
Another way to increase transparency and trust is through technology. Online portals that provide easy access to portfolios give clients a sense of control over their invest- ments. Rather than worrying about what they can’t see,
or stressing over excessively complex documents, a user- friendly interface can build trust. The CFA report found a “strong link” between advisors’ use of technology and client trust, especially among younger investors.
The Edelman barometer pointed to another significant shift. Despite the “pervasive” lack of trust in societal leaders — religious and government leaders, as well as the very wealthy — trust in fellow citizens and commun- ity members is strong.
“These findings are emblematic of one of the major trends of the past two decades: the shift from top-down to horizontal influence,” the report said.
In the past, advisors may have been tempted to play gatekeeper, holding the keys to investment information as well as the means to trade. That’s no longer tenable for obvious reasons. Clients are coming in loaded with infor- mation, and do-it-yourself investing options are cheap and easy to use. The Edelman report shows there’s less and less room for a hierarchical advisory relationship.
Adjusting your practice to be more transparent and your client relationships to be less top-down will align with today’s more complicated version of trust. It will also make the profession less vulnerable to the unsavoury depictions that further erode clients’ faith. AE
Competence is no longer enough
The Edelman report says waning trust is widespread. No institution — business, government, non-governmental organizations nor the media — is seen as both competent and ethical. This helps to explain the “stagnating trust in the face of strong economic performance.” Com-
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