Solving the Trust Problem
Clients cite trust as the primary reason for satisfaction with their advisor, but as firms move beyond just investment advice or insurance into more comprehensive advice, the stakes are raised for the trust relationship with the client.
For many years, the financial services industry has had a trust problem. We know this because of a well-known survey that is done each year by Edelman, a global communications firm, called the Edelman Trust Barometer. The most recent survey in 2021 was conducted in 28 countries and had 33,000 respondents. It is widely quoted in the press and has become an important study that demonstrates the need for trust across institutions and countries. In 2021, only 52% of those surveyed said they trusted financial services companies to “do what was right.” Although this represented an improvement of eight percentage points over their 2012 score (44%), it ranked at the bottom of a list of the nine major industry categories, behind technology, healthcare, automotive and energy to name a few.
The financial services industry, we can conclude, is in a trust recession. But consumers tend to view an individual advisor differently from their firm. They may not trust their firm or industry in general, but they tend to trust their advisor.
The COVID-19 pandemic seems to have worsened consumer trust in financial services. A recent survey of consumers by Morning Consult, a polling company, found that trust in financial services providers declined by 4% in the past year. Across all companies in this category, 43% said they “tend to trust” financial services firms, while 42% said they did not. When data was analyzed just for investment and wealth management firms, the numbers were evenly divided (36% each) for “tend to trust” and “tend not to trust.”1
The financial services industry, we can conclude, is in a trust recession. But consumers tend to view an individual advisor differently from their firm. They may not trust their firm or industry in general, but they tend to trust their advisor. According to research by Cerulli, trust in their advisor is the most cited reason (25%) for an investor’s satisfaction with their advisor, before both service (18%) and investment performance (17%). While consumers may not trust the financial services industry, for some reason, the advisor has passed a different test. Understanding the dynamics at play here can help firms re-establish trust in an industry short on it.
The Elements of Trust
How do we grow to trust those with whom we work? Answering this workplace question might provide an instructive framework for understanding why consumers might trust an advisor. Heidi K. Gardner, a researcher at Harvard, studied 3,000 knowledge workers and identified two types of trust that are key for people to work together. The first she called “Competency Trust” which she described as the belief that someone can deliver high quality work. The second she labeled “Interpersonal Trust” which is the belief that others have good intentions and high integrity.2 It turns out that the elements of trust are pretty simple. In fact, we probably already have used this framework when we visit a new doctor or hire a plumber. We instinctively ask ourselves “Does this person know what they are doing?” and “Will they be honest and act with integrity?”
It turns out that the elements of trust are pretty simple... We instinctively ask ourselves “Does this person know what they are doing?” and “Will they be honest and act with integrity?”
These two questions are inseparable. Competency is worthless without honesty and integrity. And honesty and integrity are not of much help if the person is incompetent. Customers need to know both traits are present if they are to engage with a financial planner and use them as their trusted advisor. This is why so many financial advisors obtain clients through referrals. If someone says to you “I worked with Susan and she is knowledgeable, and of high integrity,” you now have some evidence to rely on to help you with the decision to hire them or not. It also is why many financial advisors acquire new clients relying mostly on referrals. According to Cerulli, over half (54%) of all new clients are through referrals from clients, friends and family.3 It may not be a perfect method, but it addresses our most serious concerns when choosing a provider of services.
Trust in the Marketplace
As firms move beyond just investment advice or insurance into more comprehensive advice, the stakes are raised for the trust relationship with the client. When you are trusting someone to help you navigate your financial life, a failure of integrity, honesty or competency can be catastrophic for a client. In fact, Cerulli research shows clients reference “trustworthiness, honesty, dependability” (20%) and “knowledge, quality of advice” (14%) as two of the top reasons for dissatisfaction with their primary advisor.
Therefore, advisors must demonstrate competency in areas beyond the traditional sphere of advice (i.e., investment advice). If an advisor doesn’t provide tax advice, they still must understand how taxes can impact a client’s financial situation. An advisor may not be a lawyer, but they should know enough to understand when a client needs an update of their estate planning documents.
At the same time, regulation has raised the bar for financial advisors. Increased transparency rules, and new requirements to act in the client’s best interest have raised consumer awareness of honesty and integrity. A referral by a friend may get an advisor the chance to obtain a new client, but it may not be enough if the prospect is not convinced that they have high integrity, in addition to competency.
The marketplace has clearly changed, and financial firms need to be able to demonstrate that their financial planners should be trusted as being both competent and ethical.
Competent and Ethical Advice
Firms and advisors realize they cannot just tell prospects that they are competent and ethical. It doesn’t work that way. If it was that easy, everybody would have it on their business card (assuming their compliance department allowed it). It would be the equivalent of someone saying, “trust me.” Most people would be skeptical if not outright concerned if an advisor resorted to such a technique to acquire new clients.
If a certification’s competency standards (exam, education, and experience) are rigorous, validated by an accrediting body, and require high and enforceable ethical standards, earning that certification can go a long way towards solving the trust problem.
For advisors, there is a more effective and time-tested method to demonstrate that they should be trusted to deliver competent and ethical financial planning: submit to a third party — a certifying body — to require a demonstration of competency and integrity. If a certification’s competency standards (exam, education, and experience) are rigorous, validated by an accrediting body, and require high and enforceable ethical standards, earning that certification can go a long way towards solving the trust problem.
The CFP® certification is the recognized standard for financial planning today because it meets these requirements. With its rigorous education and exam, along with a requirement for all certificants to agree to act as a fiduciary when providing financial advice, it allows consumers to identify professionals who have demonstrated competency and made a commitment to their certifying body to engage in ethical conduct. It has stood the test of time, and firms, advisors and consumers recognize it as the must-have designation when seeking financial planning services. Firms started to include it in their advertising because it is so well-recognized as a standard for financial advice.
Leading With Trust
Today, firms and advisors realize that simply relying on offering the best products is hard to sustain and may not be enough to win new and retain existing clients. If the product is now advice, then the quality of advice (competency) and integrity of the advisor (ethical standards) becomes paramount in a client’s decision to hire a financial planner. Consumers want to trust their financial advisor and will be loyal if they believe they are knowledgeable and have integrity.
For firms seeking to increase trust in the minds of their clients, they cannot change their minds through words only, but rather only through actions. Promoting CFP® certification is the better way to deliver financial planning. It demonstrates the firm’s seriousness in handling the client’s financial goals and objectives, while allowing the CFP® professional to earn the client’s trust through the demonstration of competency and integrity that comes with the certification. By leading with trust, firms will show that they are committed to having their clients always come first.
1. Morning Consult: Trust in Financial Services, 2021.
2. WFH is Corroding Our Trust in Each Other; HBR, February 10, 2021.
3. Cerulli, U.S. Advisor Metrics 2020.
Interested in discussing how CFP Board can support your firm’s certification efforts? Contact CorporateRelations@cfpboard.org.