Client Service

Vanguard Emphasizes Trust in Client and Adviser Relationships

A study suggests best practices for advisers to gain an investor's confidence.

By Amanda Umpierrez editors@strategic-i.com | October 17, 2017

A recent Vanguard whitepaper highlights the importance of client and adviser relationships regarding trust, and how advisers can earn an investor’s confidence.

The paper, “Trust and financial advice,” found most investors place a large amount of trust in their advisers, with eight in 10 respondents (81%) giving their advisers a high trust rating in the study. However, on the other side of the spectrum, nearly one-quarter revealed they have had an experience that shifted confidence in a current or previous adviser.

“While we’ve inherently known that trust is vitally important to investors when working with advisers, we were able to uncover through our extensive research both the drivers of trust and practical ways advisers can build it,” says Anna Madamba, Ph.D., author and research analyst in Vanguard’s Center for Investor Research.

The study revealed the top two drivers of an adviser’s trustworthiness are “advocating for a client” and “acting in the client’s best interest,” and that high trust levels with investors can lead to optimistic business outcomes for advisers.

To gain trust, Vanguard recommends advisers practice ethical behavior by reinforcing a principled culture with oneself and in the work environment; assure that quality and pricing of products and services align with the client’s needs; be transparent with compensation arrangements; and focus on marketing and client experiences. Vanguard suggests offering a solid financial plan to investors; following efficient communication standards; and making sure the client feels valued and respected.

In fact, not paying enough attention to an investor or his portfolio was one of the main causes of distrust, according to the study. Forty-four percent of respondents indicated their reason for broken trust was because the adviser “did not pay enough attention to me or my portfolio.” The leading cause for broken trust, with 46% of respondents, was underperformance in the investor’s portfolio.

According to the whitepaper, trust in a financial advisory relationship is divided into three categories—functional; emotional; and ethical trust. Functional trust is described as the client’s confidence with the adviser’s credentials, qualifications and skills; emotional trust relates to “aspects of the relationship between the investor and financial adviser that bring about positive feelings or sensibilities in the investor;” and ethical trust concerns the adviser’s practices and behaviors in accordance with appropriate conduct.

Of the three, emotional trust was rated as the highest impact on overall trust. Ethical trust followed, with functional trust coming in last.

More information about the study can be found here