How trust works in the client-advisor relationship

By Lauren McNitt

Trust Project


A financial advisor has very little time at the outset to establish a relationship with a prospective client. So how can an advisor most efficiently use that time to build trust?

The importance of trust

Trust in the financial services industry plummeted after the 2008 financial crisis, negatively impacting how clients and prospects view financial advisors. If advisors want to continue to bring in new clients and help those clients plan for their financial futures, advisors must focus on rebuilding trust.

“Trust is the most important element of any relationship,” says clinical psychologist Richard Osborne. “Trust determines whether we choose to continue our involvement in a relationship or to walk away, be it business or personal.”

Trust is crucial in the advisor-client relationship where much of a client’s financial future, including retirement planning, estate planning, and planning for children’s college education, depends on their financial advisor.

“If people trust you, they will do things like take your advice more quickly, or take it at all as opposed to not take it. They will buy from you, they will be more willing to give you the benefit of the doubt and to cut you a break,” says business consultant Charles H. Green, author of the book, “The Trusted Advisor,” and founder of Trusted Advisor Associates.

In order to successfully manage a client’s financial future, the advisor must earn and maintain the client’s trust. For example, if an individual doesn’t trust their financial advisor, they are less likely to take the advisor’s advice, and they are less likely to be honest with the advisor about the state of their finances. Both of these issues impede a financial advisor’s ability to effectively serve the client.

Most advisors understand the impact their ability to build trust has on their success. Seventy-four percent of financial advisors think that trustworthiness is the most important consideration when a consumer selects a financial advisor, according to a State Street–Knowledge@Wharton survey. The problem is not that advisors are unaware of the importance of trust, but rather that they are unsure how to build it.

How trust works

When choosing a financial advisor, most people believe that they are making the choice using rational thought, according to Green. However, he says trust is “both rational and emotional.”

“People make up their minds with their emotions and then after the fact tend to justify it with the rational mind,” says Green.
In other words, if an advisor doesn’t appeal to a prospect’s emotional side, their credentials and track record will not matter.

“Emotion really ends up playing the larger role in terms of that gut sense we get about somebody,” says Osborne.

Green has broken trustworthiness down into an equation of four components: credibility, plus reliability, plus intimacy, divided by self-orientation.

Green says credibility translates to, “Can I believe what you say?” Reliability means, “Can I depend on you?” Intimacy means, “Can I feel safe and secure with you?” And self-orientation equates to, “How much of your attention is focused on yourself and not on me?”

If a client thinks an advisor is focused on them, they are more inclined to trust the advisor, according to Green. However, the most important factor is intimacy, whether “people feel safe and secure with you,” says Green.

The three levels of trust

The advisor-client relationship consists of three levels of trust, according to a report from State Street Global Advisors and Knowledge@Wharton, “Bridging the Trust Divide: The Financial Advisor-Client Relationship.” These levels are: trust in technical competence and know how; trust in ethical conduct and character; and trust in empathic skills and maturity.

The first level, trust in technical competence and know how, equates to a client’s trust in the advisor’s experience and knowledge of their field. Advisors tend to underestimate the importance of knowledge and expertise, according to the SSGA-Knowledge@Wharton report. Just 26 percent say it is an important factor in serving clients, while 47 percent of clients view it as important.

Advisors can demonstrate their technical competence through continuous professional development, according to a TD Ameritrade report, “Establishing Trust in the Advisor-Client Relationship.” When advisors invest in professional development and add credentials to their resume, it increases their credibility and ultimately their clients’ trust.

Trust in ethical conduct and character, the second level of trust according to the SSGA-Knowledge@Wharton report, is simply a client’s trust that their advisor will not steal from them. The reputation of the advisor’s firm and the reputation of the advisor are both factors in this level of trust.

Trust in empathic skills and maturity may be the most important level of trust, according to the report. This level is the client’s trust in the advisor’s “relationship competence,” or the client’s trust in the advisor’s ability to handle interpersonal issues associated with providing financial advice.
Credibility vs. trust

Credibility and trust are intertwined, but trust is established before credibility, according to Michael Lovas, a psychological marketing consultant and author of “The Credibility Advantage.”

Establishing credibility is a three-step process, Lovas says. First, a prospect or client must feel safe with the advisor. Second, the client must like the advisor. Finally, the client must think the advisor is relevant.

The key to establishing credibility is “continually serving as a relevant resource and helping the client understand the advisor’s value,” Lovas says.

Building trust

A financial advisor has very little time at the outset to establish a relationship with a prospective client. So how can an advisor most efficiently use that time to build trust?

Being genuine is the most important factor in building trust, according to Osborne, and this can’t be reduced to any specific action.

“Through listening, really listening, sincerely listening, not simply pretending to listen and rehearsing our responses, we communicate we have genuine interest in the other person,” says Osborne.

In addition, Osborne says if an advisor notices their prospect or client is becoming uncomfortable, then addressing their discomfort directly can help build trust.

Remarkably, the verbal content of conversation only accounts for a minor part of what is communicated. The greater part of communication is body language, according to Osborne. If an advisor notices a client avoiding eye contact, pulling away, tensing up, or exhibiting other signs of discomfort, Osborne recommends that the advisor risk stopping the interaction in order to address the problem. This gives the advisor the opportunity to solve the problem, and communicates to the client that the advisor is concerned with the client’s feelings.

The two primary ways advisors impede their ability to establish trust and credibility are failing to communicate clearly and not taking the time to understand their clients, according to Lovas. Advisors should “have an adult conversation” with prospects and clients, rather than focusing on selling, says Lovas.

Maintaining trust

Once trust is established, an advisor must continue to foster that trust. Just as communication is vital to building trust, it is the key to maintaining trust.

Advisors should focus on clarity especially when explaining the more complex aspects of their services, according to the SSGA-Knowledge@Wharton report. However, while clients want explanations that are clear, they should not be not too simplistic, says University of Pennsylvania Wharton School professor Rachel Croson in the report.
In addition, frequent and consistent communication is needed, according to Catherine Weatherford, president and chief executive officer of the Insured Retirement Institute. Since the financial crisis, clients expect between 12 and 20 touch points per year from their advisors.

“They want to be called, they want to receive updates and they want to receive emails. Send me some information about the markets. Send me some information about things that you think I need to be considering,” Weatherford says.

However, the SSGA-Knowledge@Wharton report warns that the quality of the communication with clients is more important than the frequency.

Much of the time the advisor will be communicating with the client, but the client will also communicate with the advisor’s staff. An advisor’s staff will therefore have a large impact on the client’s opinion of the advisor’s firm, according to the SSGA-Knowledge@Wharton report. Hiring a well-trained and professional staff is essential to building a client’s trust, the report says.

Get to know the client

Clients not only want to get regular updates, they also want to know their advisor cares. The advisors who are getting and keeping business are the advisors who pick up the phone and call their clients to check in, according to Green.

Advisors should focus on getting to know their clients, not just their clients’ financials. As discussed in the SSGA-Wharton report, trust in empathic skills is possibly the most important component to building trust in the client-advisor relationship.

An advisor can demonstrate their empathic skills by taking interest in their clients’ personal lives, such as whether they are divorced, how old their children are and whether there has been an illness in the family, according to Weatherford. An advisor should understand how their client got where they are today, as well as what their goals are for their personal and financial future.

The most successful sales people are those who understand that if they genuinely care about their clients and express this through their behavior, sales will take care of themselves, says Osborne.