Clients in need of financial advice have a lot of choice when it comes to deciding which firm or adviser to use.
Companies spend lots of money on advertising to convince people that their particular expertise is the best fit for their needs.
But with all the marketing noise, is there one particular element that helps clients pick one provider over another?
David Pugh, global head of sales and marketing at The Fry Group, was inspired to try and find the answer to this question after reading an interview with author Herman Brodie.
Formerly an algorithmic trader for an investment bank, Brodie became fascinated by the predictable aspects of human behaviour and how it affects investing and the markets.
His new book, The Trust Mandate, is aimed at financial professionals and investigates the concept of ‘trust’.
It’s the ultimate question – and one which those of us who care about client satisfaction regularly consider. Why does a client choose us? Nothing else really matters.
Brodie went back over a 30-year period, looking for evidence as to what was driving this choice.
The importance of chemistry
The conclusion to all the research was that ‘hard factors’; things like investment performance, fees and the CV of the financial planner, explain only about a third of those choices.
The rest of the decision-making process is down to ‘soft factors’.
These encompass qualities such as the ‘credibility’ of the financial planner, the consistency of approach, the clarity in decision making, the usefulness of the reports and meetings or, quite simply, ‘the kind of people they are’.
Ultimately, it’s all down to one of the most intangible factors which make up a relationship: the chemistry.
So, when sizing up a potential financial adviser, clients are really just trying to find out what the relationship with the firm is going to be like. Specifically, they’re trying to get a gauge the firm’s intentions towards them.
Are they going to have their best interests at heart or is there a chance their own goals are more important? Clients are asking – in a nutshell – how is the firm going to behave when I’m not looking?
Integrity vs competence
According to Brodie, there are two judgements clients are making when choosing a firm.
The first one concerns their intentions: do they have integrity? And the second one focuses on abilities: is the firm capable, competent and resourceful? Together these two judgements combine into what we would describe as trust.
This begs the question: what is most important, integrity or competence?
Surprisingly being smart is not that important. Having somebody intelligent working with you is only a benefit if they’re on your side. If they’re working against you, it’s not that great.
Putting your financial fate into somebody’s hands is only likely if you genuinely believe that they have your best interests at heart.
Understanding trust
Consequently, there are big advantages for both the client as well as the financial adviser when it comes to understanding trust. It’s one of those genuine win-win situations.
The advantage for the client is that trust reduces the perception of risk. So, if there is trust, the perceived riskiness of the financial planning is actually diminished, and the level of anxiety reduced.
Over-anxiety can create rash decisions, often leading to a situation where the wrong option is chosen at the wrong time. Such as choosing to sell a portfolio just after the investment markets have gone down.
Increased trust means clients are likely to stay with the same firm over the long term. Jumping from one financial adviser to another does not bring any great advantages. It just brings costs.
Opting for a long-term client/adviser relationship allows trust to truly develop – clients can speak honestly to their adviser and be completely transparent about what they really want to achieve.
This article was written for International Adviser by David Pugh, global head of sales and marketing at The Fry Group.
