A recent Vanguard study identified the importance of trust between clients and their financial advisors. In this article, we will discuss some of the key points from that study and the importance of trusting your advisor. At Whitaker-Myers Wealth Managers, we serve our clients under the fiduciary standard, putting a premium on trust between client and advisor.
Three Factors of Trust
The study identified three factors in determining trust: Functional, Emotional, and Ethical factors. A variety of attributes were assessed in the study to boil things down to these three factors. Let’s take a look:
Functional Factors
These consist of qualifications, skills, and the daily operations of a firm. Things like financial planning and regular communication weigh into a client’s functional trust in an advisor. Basically, does the client trust the advisor to perform their duties competently, by definition, in a streamlined and productive way? The study indicated that 17% of overall trust comprised functional factors.
Emotional Factors
These less tangible factors lead to a positive outlook regarding the services rendered and the relationship between the advisor and client. This would be the feeling that an advisor is in their client’s corner, removing the pressure and giving them a sense of peace surrounding what can often be a stressful part of someone’s life. The Emotional factors made up 53% of all trust in the relationship, which makes sense, given that money is a highly emotional topic for many people. People want to know that the person overseeing their financial future cares.
Ethical Factors
These factors pertain to socially acceptable conduct and meeting expectations. The word fairness is at the forefront of this factor as clients want to know that their advisor has their best interest in mind, seeks to avoid conflicts of interest, and charges a reasonable fee for their services. Ethical behavior, like abiding by the fiduciary standard, is the second most important factor, accounting for 30% of overall trust.
Money is emotional in all aspects
Evidence shows investor satisfaction in the advisory relationship tends to come from personal attention rather than actual financial returns. If investment performance were the most important factor regarding a client’s trust in their advisor, functional factors would win the day. Instead, the study found them to be the least (of the three) important factors about trusting an advisor.
Instances of distrust can arise as well. The study explored whether clients with higher levels of trust in their advisors were less likely to make a change after an experience that undermined trust. A poll revealed that the top three reasons for broken trust in an advisor were:
· Underperforming portfolio (46%)
· Lack of attention to portfolio (44%)
· Directed toward poor investment choices relative to their goals (43%)
Of course, no relationship is perfect, but this list is telling. Money is emotional. One of the advantages of hiring a financial advisor is that they help remove the pitfalls of emotionally driven investing. The reality is that despite an advisor's best efforts, they’re just the first line of defense when it comes to protecting your assets from emotional decisions like selling out of all positions when the market goes down. The top three reasons for broken trust identified above were functional and emotional factors. While an advisor can’t altogether remove emotion from investing, they can help.
The study also identified ways in which advisors should be proactive in managing trust, highlighting the following list of focus areas:
· Ethical Behavior
· Pricing and Quality of Products /Services Offered
· Compensation Arrangements
· Marketing and Client Experience
This list highlights the importance of both the fiduciary standard and a great client experience. At Whitaker-Myers Wealth Managers, we value our clients and strive to educate them, prioritize their needs, and provide the tools needed to achieve their goals and enjoy the journey. If you’re looking for a trusted financial advisor, schedule a meeting today to learn more about how we at Whitaker-Myers Wealth Managers live out our mission daily.
Putting a Premium on Trust
December 19, 2023
Nick Allen
Whitaker-Myers Wealth Managers is an SEC-registered investment adviser firm. The information presented is for educational purposes only and intended for a broad audience. The information does not intend to make an offer or solicitation to sell or purchase any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. Whitaker-Myers Wealth Managers reasonably believes that this marketing does not include any false or misleading statements or omissions of facts regarding services, investment, or client experience. Whitaker-Myers Wealth Managers has a reasonable belief that the content will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences. Please refer to the firm’s ADV Part 2A for material risks disclosures.
Past performance of specific investment advice should not be relied upon without knowledge of certain circumstances of market events, the nature and timing of the investments, and relevant constraints of the investment. Whitaker-Myers Wealth Managers has presented information in a fair and balanced manner.
Whitaker-Myers Wealth Managers is not giving tax, legal or accounting advice, consult a professional tax or legal representative if needed.
Copyright (c) 2023 Clearnomics, Inc. and Whitaker-Myers Wealth Managers, LTD. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company's stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.
