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Advisers should mind the expectations gap
BY JOHN DYALL | FRIDAY, 13 APR 2018   12:14PM

The CFA Institute has just released its annual global survey on the state of investor trust called "The Next Generation of Trust".

One of the most important insights is the value of trust in contributing to the bottom line. In an inherently opaque industry such as investment advice and management, trust lies at the heart of the client/adviser relationship.

When a retail investor is seeking out a financial adviser, they overwhelmingly said trustworthiness was the most important thing they looked for. In fact, it was twice as important as the second quality - the ability to achieve high returns.

And once the client has chosen, trust is a key determinant in the health and term of the relationship. For the adviser increasing trust represents opportunities in building relationships and providing additional services. Decreasing trust  increases the risk of losing the client (and all their potential referrals) forever.

For that reason, as much as any, "The Next Generation of Trust" should be on the agenda of management committees in financial advice firms across Australia.

It's a blueprint on what clients value, what they expect and the gap (which can be quite substantial) between those expectations and what is delivered.

The survey asked respondents about specific steps advice firms could take to build trust.

The largest expectations gap was between the importance of the statement: "Is forthright about disclosing and managing conflicts of interest." It was rated "very important" by 80% of respondents, while the satisfaction level was 43%. This is a gap of 36 percentage points.

The next largest gap was in relation to the statement "Fully discloses fees and other costs". It was rated very important by 84% of respondents yet only 48% were satisfied with behavior in this area. A shortfall of 37 percentage points.

The CFA survey also found that the two most common reasons clients give for leaving their advisers are underperformance (47%) and a lack of communication or responsiveness (43%).

Another reason for leaving - particularly appropriate in this age of Facebook and Cambridge Analytica - is a data or confidentiality breach (40%). On a side note it might be a good idea if businesses explicitly stated what they did to keep client information safe from prying eyes.

Compared with these reasons, an increase in fees (28%) or the departure of the financial adviser from the firm (26%) were comparatively minor.

One of the more intriguing insights from the survey regarded the importance of a company's "brand". Globally, 46% of retail investors say when considering an investment firm, a trusted brand is more important than "people I can count on".

For financial advisers, part of brand building includes being active in the community, running corporate social responsibility programs and other types of charity work. In fact, 44% of retail investors said they would be more trusting of an adviser or company that worked in this way.

What should advice practices do with this information?

Measuring trust with an annual client survey is a good place to start, and then ensuring the gap between the services and values clients expect and what gets delivered reduces year by year.

The metrics and questions asked by this survey is a good place to start.

The survey report is available from the CFA Institute website. In the interests of full disclosure, the author is a CFA Charterholder. 

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