Would you trust a financial planner?

It is interesting to see how, despite the temporary dictates of current fashion, certain values always come into their own.

Right now “trust” is an old fashioned value of newfound, but particular, relevance in client relationships

It is interesting to see how, despite the temporary dictates of current fashion, certain values always come into their own.

Right now “trust” is an old fashioned value of newfound, but particular, relevance in client relationships. It has taken on all the characteristics of being a key ingredient for financial advisers’ relationship with clients as we compete with a variety of new service providers.

It can be argued that trust is the cornerstone in successful client relations for the financial services industry. But trust is not something that can be bought off-the-peg to give an instant fit. It requires a big investment of time over a long period and depends on a relationship based on involvement rather than one based on transactions.

To some extent, the way the financial planning industry still largely earns its income - fees or commission based on transactions - has not helped the development of trust.

The financial planning industry is made up of all sorts of advisers and businesses, including very successful one-person operations and national businesses with many branches.

Generally speaking, individual participants need to take on the characteristics of a trusted partner in the same way that accountants or solicitors are seen.

Larger organisations need to be seen as a trusted entity in the way private banks are recognised. Perpetual views the European style private bank, including having client relationships based on ongoing advice rather than transactions, as the model for success for larger financial planning groups.

As a generalisation, we believe financial advisers should be equipped to give advice on all aspects of client’s wealth management needs, including investment, tax, legal, estate planning and accounting advice, setting up suitable structures, as well as acting for them in financial affairs, in the same way as private banks do in Europe.

About the only thing a private bank can do that a top ranking financial planner may not, is provide a bank account. But with cash management accounts offering cheque book and credit card facilities, this is not an essential ingredient.

Relationships based on trust that add value to client’s wealth building and protection programs are needed if financial advisers are to compete with the other distribution methods now open to investors. Competition comes in a variety of forms and it is more than just the Internet and other forms of direct investment. It also includes those groups of professionals Australians have always trusted, such as accountants who are increasingly entering the market, as well as new competitors such as private banks.

Lawyers and accountants have a big advantage as generally they get instant recognition for being trustworthy, despite individual instances of abuse of trust. While the reputation of financial advisers is improving, it is also true that the profession as a whole is not yet generally seen as trustworthy, even though individual advisers may have the highest reputation with their own clients.

At the bigger end of town, major financial institutions have the advantage of size — they have invested heavily in the reputation of their brand to instill trust and confidence in the minds of investors. Indeed, trustee companies have a particular advantage inasmuch as they were formed to legally provide trust, and have been doing so for over 100 years.

Why is trust important? The fact is that more investors are finding investment decisions complex and difficult to make, and will need to trust others to make those decisions with them, and later for them. This will be increasingly true in all aspects of day-to-day living as our retired population grows older, but is particularly true for investment matters.

The fact is that the typical financial planner’s client base is now made up of people in their mid fifties through to their mid seventies. As Australians get older (even in their sixties) their desire to make decisions reduces and they become resistant to change. They need to trust their adviser to the extent of increasingly empowering them to make investment decisions in their best interests.

More and more Australians are falling into this category of having investment wealth, living longer and finding decisions harder.

The growth of Internet and other low cost broking services is also evidence that more younger Australians are investing and, in the first place anyway, doing it for themselves with no third party adviser involved.

Does this mean that there is a whole new generation of investors who will never seek advice?

It seems to me that as investors start to accumulate wealth, perhaps take a few knocks through market corrections, and realise wrong decisions cost real money, they will recognise they need advice.

But when these direct investors do realise that they need advice, who will they turn to? Who will they trust to give advice that will add value to their investments? And at the other end of the age spectrum, who will older Australians trust with the decisions they no longer want to make?

That is the challenge for the industry. It is those individuals and organisations who have a reputation for trust who will be winners, and advisers who have a trustworthy reputation have a very positive future.

Wayne Wilson is group executive for Perpetual Private Clients.