How to build a trusting relationship

A major fund firm discusses the three types of trust, along with different ways to develop them

How to build a trusting relationship
Any decent financial advisor knows that trust is critical to their relationship with clients. And it’s becoming more important than ever, given the increasing focus on investor vulnerability as well as potential conflicts of interest. That begs the question: what makes a trusting relationship?

According to a recent study conducted by the Vanguard Group, clients’ trust in advisors consists of three elements:
  • Functional trust, which focuses on core skills and knowledge;
  • Emotional trust, which is driven by how much an advisor acts as their clients’ advocate; and
  • Ethical trust, which reflects adherence to expectations of correct conduct.
The firm found that emotional trust is the most significant component; in a survey of investors with at least US$100,000 in investable assets, it accounted for 53% of overall trust in advisors, as reported by a population of. Ethical trust took second place with 30%, while functional trust figured in 17% of responses.

Many relationships begin via a referral, which gives advisors a valuable head start. However, specific actions and behaviours are needed to preserve and develop all dimensions of trust.

With regards to emotional trust, the important drivers reported by investors include pursuing client goals almost as if they were your own; making clients feel they relate or make a connection with; providing a sense of relief; and offering products that are in tune with their financial goals and risk tolerance.

In terms of ethical trust, important drivers are acting in the client’s best interest at all times; acting morally and with integrity; arranging a reasonable manner of compensation; being willing to admit what you don’t know; and having no conflict of interest or ulterior motive.

Finally, the drivers of functional trust include knowing how to conceive, execute, and reassess a financial plan; proactively contacting clients regarding their investments or portfolio; having relevant financial-industry qualifications; doing what you say you will; and showing awareness of trends in the financial markets.

A high level of trust can translate into numerous benefits. Among investors with high trust in their advisors, 94% said they would likely recommend the professional they work with to others; 70% said they are likely to entrust their advisor with extra money to invest; and only 2% would consider switching financial advisors.

Related stories:
Going beyond a continuing-education checklist
How advisors have to step up