May 25, 2022 – By Frank Corrado, CPA, CFP®, RLP.
Trust is essential in a client’s relationship with their financial advisor. Being trustworthy is routinely mentioned as the most critical factor in the relationship. Yet, those working in the financial services industry are among the least trusted professionals in any profession. Why is that?
The challenge is having a conceptual framework and a simple analytical way of evaluating and understanding trust. Describing trust in a way that allows you to understand the underlying behaviors will help you determine who is trustworthy and provide you with an actionable way to earn the trust of others!
The Trust Equation
My continuing education in Life Planning introduced me to “The Trust Equation,” a model developed by Charles Green to assess trustworthiness. It details four components that affect trust. Three increase a person’s trustworthiness: credibility, reliability, and intimacy. The fourth one, self-interest, reduces a person’s trustworthiness.
Eureka! This model is worth considering with your relationships because it is clear, simple, and relatable. It provides clear guidance on becoming more trustworthy as an individual and assessing others that you must trust.
If you are currently working with a Financial Advisor, consider how these factors are reflected in your relationship. If you are not working with a Financial Advisor because you possibly fear their motivations, reflect on the specific behaviors you would expect to observe to gain their trust.
Credibility
Credibility is at the heart of a relationship with an advisor, planner, wealth manager, insurance agent, or any title on a business card that provides you with financial advice. Credibility has to do with our knowledge base and the words that we speak. Are we knowledgeable about a comprehensive set of financial principles? Can we back up our words with underlying knowledge and experience?
What is our educational background? Have we attained specialty designations that require a rigid course curriculum, standardized testing, and continuing education?
Does your advisor keep up-to-date, maybe even publish about changes within the industry, the changing economic climate, and proposed legislation or tax rulings that will impact your finances?
Experts have high levels of credibility, and we trust them.
Reliability
Reliability has to do with our actions. Can we be depended on? Do we do what we said we would do? Do we do it when we said we would do it, and to the quality, we said we would achieve?
Reliability should be considered within the context of expectations. Expecting a call back within 10 minutes is a different standard from expecting a “best effort.” Without clear communication about expectations, assessing reliability becomes a bit more subjective.
Practically speaking, I believe that reliability can also be assessed as a measure of 1) pro-activity and 2) curiosity. To be effective, a Financial Advisor must know the client well enough to facilitate the anticipation of the need for positive action or refrain from making bad judgments. Intertwined with the importance of intimacy (see below), pro-activity is the constant search for trying to “know the unknown.” Taking a proactive stance is fueled by a healthy level of curiosity. It is a type of skepticism that considers “better” ways to solve a problem. It is a “no-stone-unturned” attitude, tempered with a reluctance for “analysis paralysis.”
Reliability, over time, is a state of mind. It’s knowing that you can count on someone to do their best to do what they said they would do. If you need a “scorecard” to demonstrate reliability, I suspect more work needs to be done.
Intimacy
Intimacy in the trust equation is how secure we feel in entrusting someone with personal information, particularly about our doubts and insecurities. It is a peek behind the curtain of life. It’s a slightly strange fact of human life that the more we feel we know about someone, about “who they are,” the more trustworthy we think them to be—intimacy relates to our willingness to share our vulnerability with people.
Credibility and reliability can be considered the “hard skills” within the trust equation. They are more easily observed and assessed. On the other hand, as you would suspect, intimacy relies on softer skills. The level of intimacy that we have with others is improved the more we open up about who we are. We express vulnerability by sharing details of our personal lives, thoughts, feelings, and doubts. This helps build intimacy with others, which in turn helps build trust.
As a broad generalization, financial advisors tend to be “left-brained” and primarily analytical and methodical in their thinking. Working with numerical concepts and hoping to “prove” the most rational approach puts them in an uncomfortable position when faced with a range of emotional obstacles. The skill of asking open-ended questions, empathetic listening, and understanding behavioral finance were only integrated into the Certified Financial Planner Board of Standards (CFP Board) list of financial planning topics tested on the CFP exam for the first time in March 2022.
George Kinder, known as the “Father of Life Planning,” has developed a process for advisors to build intimacy with their clients and provides a certification – Registered Life Planner (or RLP) – to those who meet the rigorous study, practice, and continuing education requirements.
Self-Orientation
Self-orientation in the trust equation refers to our focus and how much we align with the interests of others. Highly self-oriented people are hard to trust as they are more interested in themselves than those they work with. If people think we are more interested in our own goals than their goals, they are less likely to trust us not to seek personal gain at their expense.
Self-orientation leads to lower trust.
Unfortunately, the Financial Services industry tends to compensate its client-facing employees based on the revenue they bring to their firm, which usually relates to the type of products sold. To make matters worse, there is little transparency related to the fees paid by the client, either directly to the advisory firm or through products and services earned by the advisory firm from a third party for services they provide on your behalf.
Adding to client woes is the fact that the three primary regulators (SEC, FINRA, and DOL) all have opined on the merits of being a Fiduciary – putting the client’s interests first and ahead of yours or your firm’s – but have yet to agree to a standard definition, nor do they have any process in place for enforcement.
Conclusion
Being wary about trusting someone with your hard-earned money is understandable in our current environment. But the world of cash management, investments, taxes, insurance, and estate planning, among other areas of personal finance, can be daunting to anyone. Seeking professional help with your finances, and the many life decisions faced along the way should be a lot easier than it is.
The Trust Equation will provide you with a framework to assess the likelihood that any professional financial seeking to establish a relationship with you has qualities commensurate with a high trust score. Of course, only time will tell, but knowing what to look for is a huge advantage that will help put your mind at ease.