Trust – hard to gain, easy to lose

Recently it seems that all the financial and economic news we hear has been negative…well, even more so downright devastating. The news has been a regional issue, such as the Allen Stanford case out of Antigua, which has had an economic impact on the Caribbean, but it has been a hit on a global scale as well.
Every one of our clients has heard about Bernard Madoff, some have even experienced direct monetary loss from this record-breaking Ponzi scheme. The fallout of these recent events has not only affected how we will be doing business going forward, it has also affected the trust that our clients had once placed in the financial system, as well as the trust that they place in us, their wealth advisors.
Trust is a simple term, yet a complex and essential concept. Like similar values, such as honesty or integrity, trust is often taken for granted until it is lost. Trust is the foundation of a wealth management relationship, not a technique to be deployed strategically. It is a condition and attribute that arises from deeply held values and something that is earned over time.
Trust between business partners is the critical element for any sustainable business. It is a common social currency of everyday personal and business relationships. Due to all the recent financial and economic events over the past 18 months, clients have become fearful of who to trust and where to turn for answers. And these answers have been hard to find.
As advisors we must focus on strengthening, or rebuilding, our relationship with clients by communicating the impact of the recent events, as well as, discussing the lingering effects these events will have on our client’s wealth. The relationship should truly focus on what is the best interest of the client and how best should the advisor assist the client in navigating through any upcoming events. Are the clients funds properly invested? Should there be a more in-depth discussion around the client’s individual holdings and what will be the impact if interest rates rise, or even fall.
Taking interest in building the wealth management relationship should be genuine. Clients know when you are not being straight forward and honest with them. All the trust that you have built can quickly be lost. Trust could also be slowly diminished over time. Once trust is lost with a client, if can be difficult to repair. On a corporate level, many institutions are focusing on ethical behaviour and corporate responsibility. Firms have created, or in some cases, reprinted their institution’s core values. The mission statement and these core values stress how clients should be treated by the client facing professional and fellow employees. Trusting relationships may lead to a competitive advantage especially in times of crisis, when the loyalty of clients is often severely tested. It is not during good times that ethics and trust between clients and advisors are critical, but rather during these bad times, when firms can fall back on the existing trust base to better digest declining performance or a decrease in profits.
When stakes are high, as in the wealth management industry, building trust takes ample time. Trust is built based upon observable actions rather than promises or intentions to act in a certain way. With trust, actions matter more than words, and in fact all actions, even the smallest, can matter. For example, if a client and his advisor begin a relationship to manage the client’s total financial wealth, an invitation to a business lunch or a golf event may be taken for granted but may not be of a kind to initiate a positive cycle of increasing trust between the client and the advisor. To truly build trust, actions must require an effort by both parties, there must be something at stake. An individual, or firm, takes the risk of losing face or substantial amounts of money in order to start this continuous cycle of building trust. In the trust-building cycle, key actions will help establish genuine trust, while other actions, like the golf game, will not. The highest degree of trust is sustained on a track record of well-motivated actions that incrementally build a relationship over time. There is often no substitute for the kind of trust that is built over a long series of interactions, fulfilled promises and well-intentioned cooperation.
Another key ingredient for a wealth advisor is to establish transparency within the relationship. Transparency, along with education, helps reduce client anxiety and therefore builds trust. The wealth management industry is information-intensive, thus credibility is essential. An advisor must genuinely possess the knowledge in order to then impart it to a client. With the knowledge and greater understanding the client has about an investment, the more comfortable, or trusting, they are likely to become. For example, in the US, understanding and experience are both criteria that must be demonstrated before a client may engage in options trading. A good advisor should always be able to explain to his/her client why certain information is needed and can also explain why a particular product helps the client in his/her particular circumstances. Being proactive and addressing the links between certain investment actions and the individual circumstances of a client is another step towards building and strengthening trust in a wealth management relationship. At the same time, it is also a means of risk management for the advisor.
Keep in mind, that if an effort has been made to make a solution or investment completely transparent to the client, it is much less likely that the client will consider unexpected poor performance a violation of trust.
In private wealth management, many clients are in business themselves and are therefore even more aware of a how important honesty and integrity are and how they should be conducted within a business relationship. These types of clients will remain loyal and will spread the word about specific advisors and companies that can deliver a compelling spirit of genuineness in their approach to what they do. At times it is difficult to properly utilise the core values of honesty and trust, but for the advisors that can do this successfully, there are clients who will admire these individuals and work with the institutions that continually choose and demonstrate these values.