Building Successful Client Relationships: Part I, Establishing Trust

by Ryan W. Smith
Nearly all successful relationships are built on trust and time. It takes time to establish trust but once proven, trust becomes bedrock in a lasting relationship. A client-based relationship, like the one between financial advisor and investor, is no different. In a report published by State Street Global Advisors and Knowledge @ Wharton, part of the Wharton School at the University of Pennsylvania, the advisor-investor relationship was looked at closely.
This is the first in a series about successful investor-advisor relationships, looking at State Street and @ Wharton’s report along with other relevant information to examine the many aspects of building and maintaining client relationships as the foundation of a successful financial advisory practice.

Financial advisors are viewed very much like other important service providers such as physicians and attorneys, according to a research report from State Street Global Advisors and Knowledge @ Wharton, which is affiliated with the Wharton Business School at the University of Pennsylvania. Clients, when looking for a professional services provider, will typically choose the professional they feel can be trusted the most with important decisions that will have lasting impact. Trust is the core of these high stakes client-based relationships and once formed, will allow professionals to exert greater influence in service of their clients’ needs. Research shows that many investors, like patients and litigants, are looking for professionals to make difficult decisions for them: an attentive, but objective third-party always looking out for their best interests.
A good comparative example to the investor-advisor relationship is the rapport between patient and physician, according to State Street and Wharton’s report. Patients can research and identify the most important variables to consider when determining treatment options. Patients are also fully capable of determining quality of life outcomes, potential costs and procedures, survival rates, even the various theories behind methods used to treat a given condition or ailment. However, it is often very difficult for patients to determine the proper path forward when looking at all variables together. The equation is simply too personal, too complex and too unforgiving for an individual to see clearly enough to make a wise decision in many instances. Factoring in the potential long-term impact of bad decisions, the knowledge and objectivity of a trusted professional becomes even more vital.
This is where trust plays an essential role in a client-based relationship like patient and doctor. The report’s researchers found that only 15% of respondents in one survey said they would be willing to make a trade-off between similarly important factors when making a difficult healthcare decision for themselves. However, 61% of respondents in the same survey said they would be comfortable with their physician using a comparable methodology to determine the most important factors in making the same difficult decision.
When the report’s researchers asked respondents about hypothetical financial decisions, they found similar results. That is, when faced with difficult decisions with long-term impact, it appears that many people prefer to have someone else make the decisions for them, not just with them, someone they trust explicitly.
Surveys sent out by the researchers showed that 69% of investors felt being trustworthy was the most important characteristic they wanted in a financial advisor. Moreover 74% of advisors said being trustworthy was the single attribute they believed was most important to their clients. This means that trust is vital to both parties in order to establish then maintain the client investor-advisor relationship.
In their research, State Street and Wharton identified three levels of trust significant to building lasting client-based relationships:
1) Trust in technical knowledge
Investors are looking for advisors who can assist their clients in making difficult financial and personal decisions. The report showed that many advisors are hurting their standing with clients by not accentuating their expertise to the extent they should. There is a large gap between the importance clients place on knowledge and how advisors perceive the importance of being an expert. Surveys showed that only 26% of advisors said that knowledge was a top factor in a successful investor-advisor relationship, while almost half of clients, 48%, said knowledge was the number one factor in choosing an advisor.
The real challenge, then, is how to convey expertise to a layperson. Much like their relationships with doctors and attorneys, investors prize explanations that are clear but not simplistic, conveying just enough information so that all parties are comfortable with the path forward.
2) Trust in moral fiber
Once expertise is established and a path forward begins to form, investors look to answer one simple question: “How likely is this person to steal money from me?” State Street and Wharton’s research showed that, above all other factors, reputation was the most important factor most investors used to provide the answer. Even more important than the individual advisor’s character, however, was the reputation of the firm the advisor represents. Most investors know 10-15 financial services companies and this name recognition might very well give advisors with those firms a slight edge in attracting new clients.
3) Trust in council
After clearing the large hurdle of moral turpitude but before an investor fully believes their money is safe, the final building block of trust an advisor needs is confidentiality. In order to properly plan for future investment needs such as retirement, trust, estate, long-term care, succession and college savings among many others, an investor will need to confide in their advisors sensitive and highly personal information about themselves and their loved ones. Investors want to be confident that their advisors will handle that information confidentially while also being emotionally mature enough to provide objective guidance.
While many other factors come into play when building and then maintaining trust in a client-advisor relationship, establishing expertise, a strong reputation and objective council when making emotionally-charged decisions with long-term ramifications are among the most important.
The next article in this series will deal with talking with clients about fees, one of the most important topics in the investor-advisor relationship.