Re-negotiating trust: a challenge for advisers

Ask any fund manager or financial planner about how they have responded to the tide of anger from investors due to the loss of capital through the drop in equity markets and many will reply: “Think long term, don’t lose your nerve.”

But to investors who have taken the pain of loss and continue to see incompetency and downright corruption in financial planning, there is much more at stake than simply their asset base. Insightful financial advisers realise they have lost much of the very essence of why they came to prominence in the financial lives of their clients in the first place: trust.

Trust has always been the central commodity traded by advisers in acquiring and advising clients. Yet, this trust has rarely been tested due to burgeoning investment markets and lack of investor engagement in their financial journeys.

In my 15 years of research experience in talking to financial advisers about their role as a trusted adviser to clients, they have continually quoted the mantra “my clients trust me” as the default response to any question on their value or role.

But clients are about to re-negotiate the emotional contract of trust with advisers, which will change this industry fundamentally and significantly.

Financial planners will not be able to simply rely on the return to positive performing investment markets to rebuild trust. Those who maintain this belief may find themselves without clients they originally ‘trusted’ as valuable, long-term clients.

Investment markets are, of course, out of the control of planners. But the anger experienced by loss has triggered many clients to engage in their financial decisions more acutely. The quality and credibility of advice is now under scrutiny, exposing traditional flaws in the value relationship between advisers and clients.

The annual review meeting (if you’re lucky to leave it to a year’s interval) used to have clients asking simple questions like, “How much did I earn this year?”. Now, and increasingly in the future, the question will be, “How have you earned the right to manage my money?”.

Once trust has been eroded in any relationship it cannot be simply rebuilt by marketing communications, entertainment, or memory loss. The mistrust of failed expectations and disappointment must be countered, before moving on to rebuild trust.

Re-negotiating trust

How can the industry and individual planners re-negotiate trust and counter mistrust?

The psychological research on trust defines the foundations of trustworthy relationships. Torrey Orton, a fellow negotiating and influence consultant with ENS International, identifies three key factors that must be present to form and sustain ‘workable trust’ in business relationships:

* purpose ;

* competence; and

* concern.

Financial advisers must demonstrate evidence of all three to build and maintain trust.

In examining your own trust capital in your practice, ask these questions of your client relationships:

* How is your purpose in business aligned to that of your clients? How do your values align to those of your clients relative to their goals?

* How do you demonstrate (not simply claim) competence on skill and knowledge to deliver the client purpose and sustain the relationship?

* How do you demonstrate a genuine concern and commitment for the client?

Many clients will see fund managers and financial planners continuing to reward themselves through entry and exit fees and asset-based commissions as unjust. What would be the result if planners rebate some of these fees when clients lose money?

Financial planners can break down mistrust by rebalancing the justice equation. Four factors are vital in creating a trust relationship.

1. Transparency of processes— show clients how you arrive at advice and why you have made certain product recommendations. Give clear, unambiguous explanations of fees and charges and how these are calculated.

2. Share risk— if you make your living by winning on the upside, maybe you should be prepared to lose on the downside. And risk sharing can be demonstrated in so many other ways in the advice relationship.

3. Reliable confrontation— advisers must engage clients in the detail of their financial plans to expose any doubts or disagreements on the purpose and competence of advisers.

4. Reflection— open a dialogue with clients regularly about their expectations, needs and aspirations, especially while experiencing changing circumstances.

The only sure way of breaking down mistrust and creating the environment for trust rebuilding is by agreeing to clear performance measures with clients in order to build predictability.

This isn’t about predictable markets. It is about predictable behaviour. Mistrust will be eroded when we, as clients, feel confident that the actions of our advisers are truly aligned to our needs and interests. Clients must see clear evidence of this behaviour and commitment over time.

Think of every client interaction now as a negotiation, an opportunity to influence clients positively about their financial futures and their perceptions of you, the adviser. Don’t assume trust or acknowledgement, even for existing clients. Your assumptions may be found wanting.

To effectively re-negotiate mistrust, planners need a systematic framework for negotiating and influencing. Advice is no longer a single point in time interaction. Good advice is about managing expectations and influencing positive behaviour to achieve goals. Giving advice today is an ongoing, fluid process, much like a negotiation.

There are some simple, yet powerful, negotiation and influencing tools financial planners can use to influence the advice relationship. Based on the ENS International phased approach to every negotiation interaction, these include:

Introductory phase

Use open-ended questions to identify expectations and hidden agendas of clients.

Find common ground.

Agree/confirm the rules of the relationship.

Differentiation phase

Identify the areas of conflict or disagreement.

Test options on remedial action.

Allow emotions (like anger and frustration) to surface and be exposed.

Integration phase

Summarise areas of agreement (what value you contribute).

Shift focus from past to future.

Move from problem thinking to outcome thinking.

Settlement phase

Summarise the common ground of the relationship (“we both want this”).

Lock in commitment measures and consequences.

Gain agreement in writing.

Progressive financial planners will view this current crisis of confidence as an opportunity to reposition their value and refocus their role as a facilitator of wealth creation and life outcomes for their clients.

The future is very bright for those who take advantage of clients wanting greater empowerment and certainty in their financial futures and are skilled on re-negotiating trust in the advice relationship.

Keith Peel is a negotiation strategist with ENS International.