Matter of trust for financial advisors

In May, The Wharton School published research highlighting not only the central importance of trust in client selection of a financial advisor, but also analysing the dimensions of trust in wealth management relationships. Interestingly, at the inaugural Private Banking Meeting of Minds event, which convened 23 private banking chief executives and business heads in London last month, discussions were dominated by the theme of how trust is made and destroyed. The Wharton study, entitled Bridging the Trust Divide: The Financial Advisor-Client Relationship and published in conjunction with State Street Global Advisors found that clients regard trustworthiness as significantly more important than any other characteristic in their relationships with financial advisors. The research suggested that financial advisors are highly sensitive to this, but are not fully in tune with their clients when it comes to issues of cost, performance and communication. Looking at the erosion of trust, the study finds that poor quality administration and support staff and a lack of transparency over fees are the two main problem areas. The research shows that 80 per cent of a client’s contact is with support staff. High quality here is essential, but may not always be immediately attractive to a bank’s bottom line. Several of these themes were also on the agenda at the Private Banking Meeting of Minds event co-hosted by Owen James and Scorpio Partnership. The format of the event combined five key note speakers with a series of 12 CEO roundtables at which the participant business heads were able to share opinions and discuss the strategic direction of the industry. One theme that emerged is that the wealth management industry is increasingly focusing on clients as individuals, whereas the wealth management needs of clients are often more wrapped up with complex family circumstances. Few private banks have in place systems and processes that can deal with the complexities of these requirements. This job is made harder by the current frenzy of musical chairs in the private banking recruitment market. This is compounded by a shortage of talent that is driving private banks to tempt relationship managers with two-year guaranteed bonuses. This is churning the market to the detriment of long-term client-advisor relationships. Moreover, segmentation strategies are commonly geared around clients’ defining criteria, such as age, geography and profession. This is less effective than those geared around clients’ defining moments and characteristics such as the degree of their need for high-touch service and the choice between maintaining control or delegating. Defining moments are more difficult to identify, but they reflect points of change or inflection in the life of a client. Long-term, the objective of the Private Banking Meeting of Minds forum is to achieve consensus at a senior level on issues that the industry needs to address in a coordinated way. However, it was noteworthy that many of the participants picked up on themes of client confidence and trust and how the industry could strengthen its image collectively. It would certainly seem that even in the current positive environment, the focus at the highest level in wealth management is on building trust for the future. Ted Wilson is managing partner at wealth management strategy think-tank, Scorpio Partnership