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This is the second of two articles on the state of investor trust. Read the first one here.
Fiduciary, from the Latin fiducia, means trust. In this article, I contemplate the promise of a new paradigm for earning investor trust.
Previously, I wrote how investor trust in 2021 is stuck at the low levels of 2009. It is in the basement of occupational trust levels, just above car salespeople, according to Gallup. Meanwhile, the financial industry’s deafening silence remains.
But there are exceptions to this silence. Phil Edelstein recently offered good pointers on marketing tactics to build trust. The ever-witty Sara Grillo drilled down to a cornerstone of low trust – half-truths and disinformation. Grillo noted how much better the industry would look, “If advisors were willing to tell the whole truth instead of virtue signaling.”
The CFA Institute’s trust surveys have offered excellent guidance on what retail investors want. Full fee disclosure and conflict candor top the “to do” list for advisors.
Two industry leaders waded into trust waters in February 2019: TD Ameritrade CEO Tim Hockey and Pershing Advisor Services CEO, Mark Tibergien. Both executives have since departed their posts.
Tibergien noted one reason many young people avoid the financial services industry: They believe it’s “corrupt.” Sadly, young people are hardly alone. A Laboton Sucharow 2013 survey of financial services employees revealed that more than half believed their competitors engaged in illegal or unethical conduct.
Hockey addressed the trust relationship between TDA and its advisors. He did the unthinkable in finance — he admitted a mistake: “I feel we have been ambiguous about this point in the past.” Then the bombshell. TDA, he said, “is not going to try and compete in the same space as RIAs.” An industry publication reported these comments and had TDA RIAs “whooping and clapping.”
The frame for viewing trust is changing from institutional to distributive trust. Traditional trust measures express confidence in institutions’ top-down authority and expertise and have been in decline for decades. Meanwhile, Rachel Botsman calls distributed trust, “person-to- person agreements and decentralized transactions that by-pass traditional institutions and middlemen,” and it is spreading and rising.
The two are very different. Centralized, top-down trust is powered by law or authority. De-centralized and bottom-up trust is powered by the internet and technology. Think how trust in Uber and AirBnB, “flows to peers, friends, colleagues and fellow users.”
De-centralized trust grows with the reach and penetration of the internet, as can advisor marketing in the digital age. “Pro-personal marketing,” in Bob Veres and Mathew Jackson’s New Frontiers in Wealth Management turns conventional marketing on its head. “The firm” is put in the backseat. Employees lead firm branding.
Pro-personal marketing shifts the marketing strategy focus from firm credibility to employee “authenticity.” Authentic, according to Veres and Jackson, means, “staff also become evangelists for the firm … (and) advisors must be comfortable with their identity to be more open in the public domain (and) a good acid test is the ability to make videos without looking awkward or sounding contrived.”
Marie Swift, who contributed to New Frontiers, described what this means. Marie’s commentary is rich:
I have been preaching for 20 years that credibility marketing is the key to success. Families, individuals and companies want to know that the financial teams being considered are trustworthy and competent. (So) being quoted in or published by a highly credible media outlet (is valuable).
(On your website) have a mix of interesting self-published content (and include) authentic depictions of the advisor / and or team doing good works in the community (and) spending time with family, pets and nature (because) a bit of more personalized content helps prospects and clients see that you share their values and world view …. Work at showing the character and culture of the firm.
Planners Carolyn McClanahan and Rita Cheng stressed this in a podcast that should be named “radical honesty.” McClanahan said, “We all have issues, and by sharing issues and being willing to open up those cans of worms, we can do a much better job helping clients.”
New tools and opportunities are changing how trust is earned. They offer “radical” new thinking about where trust comes from. The promise of distributed trust is real. The messages and actions that earn trust are still tricky because they may appear to be indistinguishable from making a sale. They are not as the fundamentals in the comments above suggest. They should be embraced – and not discarded as too simple, basic, or conservative.
Knut A. Rostad, MBA, is the co-founder and president of the Institute for the Fiduciary Standard, a nonprofit formed in 2011 to advance the fiduciary standard through research, education and advocacy.