Business of earning trust

PROFESSIONALISM: IT COMES DOWN TO OLD ADAGE OF ‘PEOPLE DO BUSINESS WITH PEOPLE’

The gap between what investors want and what the industry is delivering has widened.

Trust. It’s such a well-worn word. Over-used the word may be, but that doesn’t take away from the fact that trust is a massive concept. Arguably it is the most important ingredient in determining if our relationships will work or not.

The financial services industry was delivered a near-fatal blow following the great financial crisis. Whether one spoke of banking, investing, lending or insurance – it all seemed to project an aura of questionable trust.

Since then Ponzi schemes, forex trading scams, binary option traders, funeral assistance businesses that are not registered nor their benefits underwritten, the collapse of African Bank and globally the fake accounts scandal at Wells Fargo have delayed the full restoration of trust. To be fair some of these businesses are downright illicit, but consumers do not discriminate.

(It’s worth noting that consumers trust the media and government even less than they do the financial services industry.)

Thus, almost a decade later, the industry is still trying to earn back trust.

A recent survey commissioned by the CFA Institute, titled “The Next Generation of Trust: A Global Survey on the State of Investor Trust”, supports this point. It observes that overall trust levels among investors — institutional asset owners and retail — have risen since 2016. However, with higher trust comes higher expectations, and among retail investors, the gap between what investors want and what the industry is delivering has widened.

For instance, more than half of retail investors believe that financial advisors fall short of meeting their expectations, particularly in the areas of fee disclosure, management of conflicts of interest and generating returns better than a benchmark. If there is good news in this, it is that by sticking to the basics of professionalism – putting clients first, being transparent about fees and performance and demonstrating expertise – the financial services industry can – and is – regaining the trust of their clients.

It comes down to the old adage: “people do business with people”. It seems to be common sense that people will appoint a financial advisor because they trust that individual to treat them fairly and do their best by them. However, if the advisor underperforms, or fails to respond to clients’ requests, then the relationship will break down as the trust is eroded.

What was interesting is that of the 3 500 retail investors surveyed – across all age groups – the majority prefer to get their advice from people, using technology as a tool for execution. But this may change. Almost half or those surveyed, 48%, say that in three years it will be more important for them to have technological tools to execute their own strategy rather than a person.

What this means is that the investment industry is competitive and is changing fast, but investor trust remains a foundational element for success.