When it Comes to the Financial Industry, What Does it Take to Gain Trust?

When it Comes to the Financial Industry, What Does it Take to Gain Trust?

The war for ‘trust’ is being waged hot and heavy.

These days, any commercial by a financial services company (insurance companies, stock brokerages, etc.) prominently displays a rainbow of humanity paired with an overly sincere professional (actor) trying to convey the message of trust. These ads, created by marketing gurus and hyper produced by ad executives, attempt to bridge the gap between an under-educated public and the sales professionals who wish to separate you from your hard-earned cash.

I must ask the following questions. Why are these companies spending millions to fight the Fiduciary Standard (the law requiring them to act in the consumer’s best interest)? Why are they so afraid of transparency? Why are they spending so much money to convince the public of their generous, open, and caring personae when they clearly don’t? Something just doesn’t add up.

According to the CFP Institute and Edelman Investor Trust Study (2013), only 51% of retail investors trust investment management firms to do what is right.

The study goes on to say that the financial services is the industry least trusted by the general population. What can build trust? According to the study, there are three major practices that build trust: 1) Transparency and open business practices is the leading response, followed closely by 2) Taking responsible actions to address an issue or crisis, and 3) Has ethical business practices.

Well, here we are in 2019 and it doesn’t appear that the industry, as a whole, has inched any closer to action gaining the public’s trust.

“We seek advice from people we trust,” says Meir Statman, Professor of Finance at Santa Clara University and author of Finance for Normal People and What Investors Really Want. “Trust, however, has downsides when misplaced, evident in Ponzi schemes. Advisors who provided services that build trust suffer lower withdrawals, while those with the ability to steal from their clients suffered greater withdrawals.”

Consumer education is key in making prudent decisions when it is in conjunction with the stated requirement of accountability, transparency, and ethical behavior. The CFA Institute published their 2016 Trust to Loyalty Survey that states that investors would be willing to pay more in return for: ethical behavior in all interactions, full disclosure of fees and costs, and taking time to understand priorities and dynamics with different stakeholders.

Well if that isn’t a hue and cry for making a hard left turn into a more consumer-friendly lane.

What is being asked for is ethical behavior and transparency! Why should that be so challenging? Instead, we get commercials that say all the right words but the firms paying the freight don’t walk the talk.

So where does that leave you, the consumer? Here are a few things you can do:
1. Read, but understand the point of view of the writer.
2. Demand transparency. Real trust cannot be attained unless you are able to see for yourself.
3. Do your research (brokercheck.org). Make sure you understand the background of the person and organization with which you’re working. If they’ve been fined over and over again, ask yourself why you are supporting their bad behavior.
4. Acknowledge that change is challenging, but if your current financial advisor isn’t transparent or acting in the highest ethical standard (Fiduciary Standard), then consider making the switch to someone who will act in your best interest. Check out NAPFA.org to find a financial advisor who will.
5. Ask questions-Ask questions-Ask questions. Don’t settle for answers that don’t specifically address your concerns or demonstrate that you are being heard and understood.
6. Begin with your values and make sure your life and those in it align best with your values.

Deborah Jarow Russ, LCSW, a licensed psychotherapist in West Orange, NJ said about trust, “Why do we continue to be drawn toward situations that just don’t work? Whether it’s the relationship that brings more sadness than joy, the job that has more moments of frustration than satisfaction or the company that has promised a service but never seems to satisfactorily deliver, we find ourselves exhausting every possibility to make things better. Often this pattern occurs because we place an inordinate amount of the blame on ourselves. We believe that if we can finally get it right, all will be fine. There is an important distinction between personal responsibility for mistakes and righteous indignation at a situation that had let us down. It takes wisdom and objectivity to tell the difference. Before catapulting toward self-blame, critically assess something that isn’t working, ask for input from those you trust, and know that making a change can open a new world of glorious possibilities.”

You deserve financial success. While you might not feel your financial acumen is sufficient to go it alone (and you’re probably correct), make sure the firm, organization, team, or individual you put your faith in (and your financial success) is worthy of that trust.