Talk to advisors about the challenges they face today and you’ll get a lengthy list that often includes unhappy clients, reduced income and a struggle to stay positive and productive.

Although these are all serious issues, most advisors are stymied by the No. 1 obstacle to getting their business back on track: rebuilding clients’ trust in their competence, and sometimes dealing with creeping doubts about their integrity.

This is a serious problem. Given the intangible nature of advice, it’s impossible to have a functioning relationship without a minimum threshold of client confidence.

The good news? There are clear steps that every advisor can take to begin the process of re-establishing trust.



> One Investor’s Story

Rebuilding trust starts by understanding what has led to its decline.

An article in the May issue of The Atlantic magazine entitled “Why I fired my broker” does an excellent job of capturing the broad sense of uncertainty over whom to trust that many investors share.

That article presents a rational recitation of some of the elements that have caused reasonable investors to become skeptical and, in some cases, cynics about the advice they’ve received in the past and are getting today.

Like many, writer Jeffrey Goldberg and his wife feel shell-shocked by last year’s downturn. “I took a random walk down Wall Street,” he writes, “and got hit by a bus.”

Investors are viewing their advisors’ messages about the need to focus on the long term as a cop-out on the part of the financial services industry. Goldberg interprets this advice as: “Give up. You’re not going to make money on your investments in the next 10 years, or 15, or 20. So, you should stop worrying about your portfolio and go to the movies like everyone else.”

Many investors are paralyzed because of the level of uncertainty we’re all operating in. Goldberg quotes Daniel Kahneman, a psychologist who has won a Nobel Prize for his innovations in behavioural economics, who explains investors’ confusion this way: “You no longer know the world you live in … now, it’s unclear what rules apply.”

Goldberg, like many investors, is unsure of whom to believe or trust. He quotes Bill Gross, probably the best-known bond fund manager in the U.S., who says: “The system is rigged against average investors.”

Goldberg’s article continues: “My crucial mistake was believing that brokers, wealth managers and the cable-television oracles who make up the financial services industry complex had my best interests at heart.”

Despite the title of the article, Goldberg notes, he and his wife didn’t actually fire their broker: “He fired us. He never said he was firing us. He just stopped calling. Eventually, I stopped calling him. I got the message.”



> Begin By Taking Responsibility

So, that’s the problem; how about the solution?

Start by recognizing the problem, make rebuilding trust a paramount priority and begin to put specific strategies in place to repair your relationship with your clients.

In many cases, rebuilding trust starts by acknowledging some level of responsibility.

It’s not just financial advisors who have taken a hit to the level of trust at which their clients hold them. A poll of Americans taken earlier this year showed only 38% trust corporations, down by 20% from a year ago and the lowest level on record — well below where it stood in the post-Enron era. (Although the biggest financial scandals have occurred south of the border, it is reasonable to assume Canadians feel much the same way.)

In an article this past spring in Fortune magazine, JPMorgan Chase & Co. CEO Jamie Dimon discusses the need for businesses to rebuild trust.

Dimon also addresses the issue of taking responsibility. He writes: “In order to address the public anger and outrage over what has happened to our financial system, we in the banking community need to take some responsibility. Banks, including ours, should acknowledge that we made some mistakes.”

Interviews with investors have revealed that one of the biggest irritants for them is the failure of their advisors to admit any fault or take any responsibility for the meltdown of their clients’ portfolios.

In some cases, all investors are seeking is for their advisors to say they’re sorry. Here’s how such a conversation might go:

“First and foremost, I’m truly sorry that I was unable to anticipate the events of the past year. I would have dearly loved to have been able to shelter you from the market downturn. Unfortunately, it took just about everyone by surprise — me included. What I would like to talk about is what we’ve learned from this and how these lessons are shaping the recommendations I’m making today.”

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> Four Components Of Trust

Suppose you’ve let your client know that you accept some of the responsibility for the damage to his or her portfolio. What next?

One of the top researchers on the issue of how to build trust is Charles Green, a New Jersey-based consultant. He has created a trust-building formula that advisors can apply:

Trust = C + R + I

S

The three values above the line (the numerator, if you remember your high-school math) are credibility, reliability and intimacy. The denominator is perceived self-orientation.

Remember that there are two elements of trust: trust in your capability and trust in your integrity.

Credibility addresses the first issue. How much do clients trust your competence and how believable are you in terms of the advice you’re providing? Are you seen to have real expertise? Does your track record build your credibility? Do you instil confidence in clients that you are providing the best possible advice?

Even where clients have been comfortable on this dimension in the past, their confidence in your ability to provide good advice has been shaken and needs to be rebuilt.

Reliability basically speaks to whether you do what you say you’re going to and deliver on your commitments.

That can be little things: if you say you’re going to call, do you call? Or, it can be big things: if you tell clients that their maximum downside risk in a 12-month period is 20%, does the portfolio you construct deliver on that?

Intimacy is the third element of the numerator in Green’s formula. Do you engage your clients at a deep, personal level? Do you ask questions that tap into their emotions and feelings? Do your clients feel that you are really listening to their answers, and is your relationship with your clients such that they feel comfortable sharing those with you? Do you respond in an empathetic fashion?

> The Demon Self-Interest

Self-orientation is the final factor in Green’s formula for rebuilding trust. It is as important as the first three factors combined. This self-orientation on your part, as perceived by your clients, involves the extent to which your clients are concerned that you may be putting your interests ahead of theirs.

There are a number of things you can ask yourself in addressing this:

Do you really seem to be listening? (There’s that “L word” again.) Do you appear to be genuinely interested in what your clients have to say?

On the other hand, do you ever seem to be in a hurry, at some point indicating impatience and a desire to move things along?

Do you contact clients with ideas and advice, even when there is no revenue entailed for you? Whether it be on a personal or business matter, if every conversation has something in it for you, clients may be legitimately unsure about your motivation for those calls.

Do you ensure that your advice is understandable and presented in plain language? Do you present both sides of your recommendations, focusing on the risks and trade-offs as well as on the potential benefits? And do you invite questions and make it easy for clients to express their concerns?

And something that’s especially problematic these days: are clients absolutely comfortable that your recommendations are not skewed by the compensation that results?

Recently, there has been extensive media coverage about how advisors’ recommendations may be motivated by their own interests rather than by clients’ interests.

Compensation is always an issue. Even when dealing with accountants and lawyers, some consumers wonder whether all the time they were billed for was necessary or actually spent on their file.

Compensation is particularly a problem in the financial services industry, however, where it typically can be commission-based, embedded in management fees or billed as a percentage of an account. Even when the fees are transparent, clients sometimes wonder whether they are getting good value.

There is no perfect solution to this issue, other than being up front and transparent: here’s what I charge, here’s why and here’s what you get for it.

As well, some advisors need to be more open about discussing available alternatives to how clients can pay for the advice they receive.



> What’s Your Trust Quotient?

Rebuilding trust won’t happen quickly or easily, and that’s why it’s easy to put it off. Given its importance, however, it’s essential that you focus attention on this important task. Now is the time and today is the day to begin the process of rebuilding trust among your clients.

If you want to learn more, take the online 20-question diagnostic questionnaire on Green’s website, free of charge. Go to www.trustedadvi-sor.com and click on “What’s your TQ rating?” You’ll receive a short report that highlights potential weak spots and makes recommendations. IE

Dan Richards is president of Strategic Imperatives Corp. in Toronto. For Dan’s video comments, visit http://tv.investmentexecutive.com/category-128-Building-Your-Business.