Make a Little Magic: Developing Trust Relationships With Clients

As both a securities attorney and a CFP® professional, I get to see a side of the financial planning and wealth management industries that few get to see – the consumer’s inside viewpoint on the marketing and service practices side of such industries. When consumers contact me about potential litigation and/or providing a forensic analysis of their investment portfolios and the financial/investment advice they have received, they often provide valuable information and opinions that they have not discussed, and probably would not discuss. with their financial advisers.

In my 35 years as an attorney and 28 years as a CFP® professional, I have noticed definite long-standing trends in consumer expectations about the provision of financial planning and investment advice. Some of those trends are becoming even more apparent with the emergence of the millennial generation, a generation that is more likely to question financial planning and investment advice from a so-called “expert.”

Financial planners and investment advisers looking to gain such clients or continue to serve families with millennials need to understand and be prepared to provide not just an answer to “why” questions, but a meaningful answer. Millennials have less of a sense of allegiance than their parents and have no problem walking away from those that cannot provide the information they need and fail to do so in a respectful manner.

A recent post on LinkedIn discussed a university professor’s findings that the two most common questions that the public uses to evaluate a person are (1) whether the person can be trusted, and (2) whether the person can be respected. For what it’s worth, my experiences in dealing with potential clients, in both practices, completely support the professor’s findings.

In college, my minor was in psychology. I did my thesis on trust, concentrating on the factors that influence the decision to trust someone and the cognitive biases that sometimes contribute to incorrect decisions to trust someone. Some 39 years later, my paper still remains as relevant as ever, as most of the points I discussed remain valid, points that financial planners and investment professionals should remember in order to grow and protect their practices.

The two primary points that I discussed in my thesis were the importance of transparency/openness and respect. Transparency has obviously become a significant issue in the financial services industry, especially in connection with the DOL’s recently announced fiduciary rule and an anticipated SEC version of a fiduciary rule.

One interesting trend that I have noticed, especially among millennials and other recent generations, is a desire to not only receive valuable financial advice, but advice that they are able to independently verify. That was one of the reasons I created my proprietary metric, the Active Management Value Ratio™ 2.0 (AMVR)and released it for free to the public. For more information about the AMVR and the simple, two-minute process required to calculate the metric, click here.

Each week I get emails and calls from people who have read the articles about the AMVR and have either taken the time to calculate the AMVR scores on their own investments or want to evaluate new investment advice they have received. When I decided to make the metric available for free online, people immediately asked me why I did so. The simplicity of the metric itself and the fact that I made it available for free has made the AMVR a tremendous marketing tool. In most cases, people have told me that both facts made them easily feel that they could trust me, especially since I provided them with a means for them to independently verify what I told them.

When I released the AMVR, I expected the legal community to quickly accept and adopt the metric since it provided a means to quantify suitability and prudence. At the same time, I expected a less positive response from the financial services industry for the very same reason. Surprisingly, many investment advisers have realized the value of the AMVR as a marketing tool, both in terms of providing prudent advice to their clients and protecting their practices. Many of those same advisers have told me that their clients commented on the adviser’s openness and willingness to give them a means to independently evaluate the advice the adviser gave to them.

If, as expected, the SEC replaces the current suitability standard and adopts a fiduciary standard similar to the DOL’s fiduciary rule, I believe that the use of the AMVR as both a quality of advice/practice protection and a marketing tool will increase significantly since it is free and simple, only requiring the “My Dear Aunt Sally” (multiplication, division, addition and subtraction) we all learned in grade school. To quote Apple legend Steve Jobs, “simplicity is the new sophistication.”

While transparency is a significant factor in the trust process, the people who I speak with stress that respect is equally important factor in the trust decision. Most people quickly point out that both are essential factors in order for a trust relationship to develop.

When I see the various lists of “top” financial advisers, I always shake my head over the fact that AUM plays such a significant role in such rankings. AUM may indicate one’s marketing ability, but it certainly is not necessarily an indicator of one’s wealth management skills. I can make that statement based on the number of forensic fiduciary prudence analyses that I have performed for fellow securities attorneys, investment fiduciaries and investors.  While many advisers may see inclusion on such lists as a means of gaining immediate respect among investors, with some even willing to pay for the opportunity to be on such lists, knowledgeable investors are aware of the “secrets” involved with such lists and demand far more for an adviser to gain the respect necessary for them to form a trust relationship with an adviser.

Based on numerous studies that have conducted on the issue of respect, as well as my personal experience, respect involves doing things to indicate to a client or prospective client that they are more than simply a means to an end. In many cases an investor will contact me to discuss litigation over simple things like the failure to return phone calls, either in a timely manner or altogether, or the failure to keep them updated on their accounts beyond just the required quarterly report. Despite what many marketing experts tell advisers, most knowledgeable clients could care less about the annual birthday and Christmas cards they usually receive from their various professional advisers. Clients want to know about the relevant information, which it he information about their accounts with the respective professional.

As discussed earlier, millennials and the younger generations are especially more information oriented and demanding in their professional relationships. If you talk to members of such generations, they often perceive such obligatory marketing tools as disrespectful in and of themselves. These generational clients would be more appreciative of an annual or semiannual client appreciation reception accompanied with a presentation of timely and useful information. I have a valued friend who has recognized this fact and offers a free monthly presentation that clients can attend, with a nice, yet simple, lunch box provided. He gets it and his practice is thriving.

When people ask me about creating and maintaining a trust relationship with a client, I usually go over the same points that I have outlined here. But I also tell them to remember two familiar quotes that apply to any successful relationships, whether business of personal.

Do unto others as you have them do unto you.

People do not care about how much you  know until they know how much you care.

Both obviously involve the issue of respect and the treatment of others. As an attorney, I have often heard it pointed out that we have thousands of laws and regulations, all stating the Golden Rule in one form or another. Likewise, transparency and openness are signs of respect, a sign of disclosing information that may be important to a client and not trying to hide any potential conflicts of interest that may improperly influence an adviser’s decisions and recommendations.

I see the current situation as analogous to the situation discussed in the classic, “Art of War,” Sun Tzu points out that those who, like rivers, shape their course according to the nature of the ground over which it flows, are those who will be victorious. Like most people, I think that the financial services industry  is going to see significant changes in business practices during the next decade. Financial advisers who embrace such change and see the inherent opportunities presented by such changes will be the ones who prosper while protecting their practices.


About jwatkins

I am a securities and ERISA attorney. I am a CFP Board Emeritus™ and an Accredited Wealth Management Advisor™. I am a 1977 graduate of Georgia State University and a 1981 graduate of the University of Notre Dame Law School. I am the author of "CommonSense InvestSense: The Power of the Informed Investor" and " The 401(k)/403(b) Investment Manual: What Plan Sponsors and Plan Participants REALLY Need To Know. " As a former compliance director, I have extensive experience in evaluating the legal prudence of various types of investments, including mutual funds and annuities. My goal is to combine my legal and compliance experience in order to help educate investors and investment fiduciaries on sound, proven investment strategies that will help them protect their financial security and/or avoid unnecessary fiduciary liability exposure.
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