advisor caution

I think about trust every day. How to earn it. How to keep it.

It’s the lifeblood of my business. So, I decided to do a little research. On some level, I already knew what I’m about to share, but it still took my breath away to see it in black and white.

Two-thirds of clients do not trust advisors to act in their best interest, cites The American Association of Individual Investors (AAII) in a June 2016 poll or some 2,000 respondents.

“Sixty-five percent said they ‘mistrust a lot’ or ‘mistrust a little’ when it comes to whether the financial services industry and specifically brokers and financial advisors will do what is in the best interest of clients,” said the AAII. [bolding is my emphasis]

Only 15 percent said they “trust a little,” and only two percent of respondents said they trust the industry a lot. “Perhaps not surprisingly, the vast majority–nearly 83%–feel that their interests are secondary to corporate profits and advisor/broker compensation,” the AAII wrote.

Fotolia 90404208 XSGuava Not Grapes

Public confusion persists over the difference between commission-based brokers (think grapes) and advisors who follow a fiduciary standard of care (think guava). What you need and want is the special flavor and uniqueness of a guava, not a common bunch of grapes.

Of course, many of you are sophisticated clients and know this. I do believe that as your fiduciary, we hold a responsibility to regularly reaffirm our trustworthiness, especially in an industry fraught with bad actors.

When the average consumer hears the words “finance” or “insurance,” they tune out, annoyed by moral failings and outright greed of Wall Street, hedge fund managers, big banks, mortgage lenders, and the Madoffs of the world.

Money is an emotional issue for people, regardless of their level of affluence. Bring it up, and the red blush of vulnerability spreads across their face.

Elite advisors, like ourselves, share a responsibility to turnaround the trust deficit. And I believe strongly that consumers of financial advisory services owe it to themselves to hold their advisors’ feet to the fire. Because growing and protecting assets depends on growing and protecting trust.

Do Certifications Signify Trust?

I can count on one hand the number of “trusted” advisors I know worthy of the name. But then, I am a tough taskmaster on most subjects.

My drive to cultivate trust drove my effort to earn key certifications: Accredited Investment Fiduciary® (AIF) and Certified Plan Fiduciary Advisor (CPFA), and to establish my firm as a Registered Investment Advisor. All these marks signify specialized knowledge of the fiduciary duty and a commitment to promote a culture of fiduciary responsibility and professionalism. But there’s no guarantee even certified advisors will do the right thing. Knowing humanity, I suspect the fiduciary care standard suffers its share of bruising, too.

It is fair to say; trusted advisors are not product salespeople. Even so, your “financial advisor” may not be operating with your best interests at heart. And some 200,000 do business in the United States. 

Fotolia 61281514 XS

That was the finding from a recent report from the Consumer Federation of America, a Washington, D.C.-based consumer advocacy group. The organization looked at 25 major brokerage firms and insurance companies.

The report said while brokerage firms and insurance companies call their professionals "financial advisors," these individuals often are sales representatives who pitch mutual funds, annuities and insurance products.

I am going to offer you some key questions to ask potential advisors in a moment to help you separate the guavas from the grapes. Put me to the test, too.

What Creates Trust

To determine what creates the trust in “trusted” advisor, we need to wade through some pretty deep waters. Opinions on trust are as plentiful as fish in the sea.

The experience of trust is highly subjective; its origin rests in the mind of the client or prospect. It can be quantified, but that’s secondary.

Neuroscience confirms that people buy on emotion and justify with logic. While this finding has a long history and its detractors, I submit the creation of trust parallels the emotion-logic sequence.

Allow me to offer my seven-point list of what (I believe) creates trust, based on thirty years in the business:

Roush’s Top-Seven List

  1. Integrity
    You experience your advisor as ethical, reliable, and trustworthy through his actions. Accountability is at the top of his agenda, alongside transparency and full disclosure.
  2. Expertise
    You know your advisor delivers what’s promised with the knowledge, experience, processes, and people in place. Your advisor is a 3(16), 3(21) or 3(38) fiduciary or brings them into the relationship.
  3. Authenticity
    You feel the passion your advisor holds for his or her profession; you know their values, belief systems, and sense their positive intent. They treat you as an individual instead of a number. And their word is golden.
  4. Chemistry
    You enjoy the working relationship, communication, and effort put forth to understand you and what you care about. The advisor asks probing questions and actively listens to your answers. His sincerity, empathy, and credibility are palpable.
  5. Insight
    Fotolia 57241610 XS 2 You appreciate your advisor’s ability to guide you through complexity, simplifying difficult topics and concepts along the way. You recognize how your advisor helps you uncover the value in his advice and recommendations.
  6. Focus
    You are confident your advisor operates in your sole interest. You will not encounter any unexpected surprises or lapses in service.
  7. Vulnerability
    You know your advisor can admit mistakes. This ability signals vulnerability, which is the gateway to courage, a quality that creates trust and confidence in others. And it develops through self-reflection and personal growth.

Key Questions to Ask Your Advisor

When all is said and done, everything comes down to truth. Will you advisor tell you the objective truth, based on facts, and will he share his truth? Ask these questions of current or prospective advisors:

What are your advisor's core values?
Can he or she recite their values to you with conviction? Or do they value the transaction over the relationship?

How is your advisor compensated?

Get very clear on whether your advisor is fee-based or commission-based. Understand how you pay the fee─ annually, deducted from your assets, or must you write a check each time you meet or speak.

How extensive is your advisor’s expertise, experience, training, and certifications?
Transparency engenders trust. And you can easily check on your advisor’s credentials, claims of expertise, the veracity of advice. Contact FINRA, other clients, do online searches for information.

Can you define the nature of your client service with “above and beyond” examples?
Self-explanatory. However, you want to look for a red-carpet brand or white-glove service that pushes way beyond a once-a-year phone call.

If I check FINRA or ERISA, will I find any instances of non-compliance?
Of course, this inquiry is critical. Nothing short of total compliance can work in our business.

What is your commitment to client education?
Do you understand your plan or investments? If not, it is a red flag. Determine to your satisfaction that your advisor will take the time to explain all aspects of your financial program patiently. You must stay informed and well educated about your money.

Will you sign a “truth commitment” or fiduciary oath for me?
For more information on this fascinating concept, check out Wealth Manager, Paul Merriman’s article on MarketWatch.

The good news? Roush Investment Group is already a 3(21) investment fiduciary.

But that does not mean we sit on our status. Your financial well-being comes first.

You will hear more from us on matters of trust.

In a world of so-called “fake news,” one thing we know with certainty: You can’t fake trust.