Perception of intent trumps all.
A study published last month, titled The Implicit Honesty Premium: Why Honest Advice Is More Persuasive than Highly Informed Advice, suggests that when it comes to accepting advice, people are more forgiving of mistakes and insufficient knowledge if they believe the messenger is acting in good faith.
The study, by Uriel Haran, of Ben-Gurion University of the Negev, and Shaul Shalvi, of the University of Amsterdam, states, “advisees would discount potentially biased advice more severely than they would discount potentially erroneous advice, even when its actual quality, as well as the advisees’ subjective evaluations of it, are similar.”
The authors add that “the results suggest people place an implicit premium on advisors’ honesty, and demonstrate the importance of establishing reputation for advisors’ success.”
For RIAs, this suggests that in addition to actually being honest, they must be seen as being honest if they want to ensure a productive and lasting relationship with clients.
As unfair and superficial as this might seem, it’s understandable that many are wary of entrusting their wealth to strangers (regardless of credentials), especially given that many lack basic financial literacy. The public remains leery of financial services firms. And thanks to guilt by association, bad actors, of which there are plenty, are partly to blame for sullying the reputation of those who have done no wrong. Mistrust from the 2008 financial crisis lingers, too.
Given these big picture concerns, how can an advisor ensure that a client relationship is built on a foundation of trust?
Providing sound advice is just the start. Advisors should help clients gain confidence about their financial choices and investment decisions. Clients need to palpably understand why they are doing what they are doing and be able to explain that to family members and others close to them. To get there, communication should be a dialogue and collaborative.
Though advisors are generally crushed for time, there’s no substitute for giving clients undivided attention. The more an advisor engages with clients, the more likely it is they will stick around.
As RIA Intel previously wrote, “failure to win the trust and confidence of clients is a key reason behind their decision to take their advisory relationship elsewhere.”