Some 60 million households may soon be consolidating or moving an estimated $16 trillion in assets, according to a new report from Hearts & Wallets, a retirement and savings trends research firm.

How can advisors play a role in the anticipated money movements?  At a minimum, they need to have investors’ trust, something that’s been dropping steadily since Hearts & Wallets started analyzing investor trust five years ago.

Today, investors are more likely to mistrust rather than trust their advisors, with more than half of investors (55%) saying they fear being ripped off by their advice provider. Only 19% fully trust their advisor, down from 24% in 2010. 

To build trust, advisors first and foremost need to make sure that customers understand how they and their firms earn money, said Laura Varas, a principal of Hearts & Wallets, in a telephone interview. Specific fees are much less important than understanding how the whole system of incentives works, she said.

“It’s usually fine with investors if there is a mix of salary, fees and commissions. It’s reasonable for a financial advisor to earn a living, and only a few investors want to write checks out of pocket for the cost of expertise,” she said.

Varas added that there is not going to be “any letup” in investors wanting to know how advisors get paid, particularly among investors in their 30s, 40s and 50s. 

Apart from a deeper understanding of how advisors are compensated, investors need to feel that the provider is “unbiased and puts my interests first,” “understands me and my values,” and is “responsive,” according to the research. They also tend to trust advisors “who have made them money.” An advisor’s knowledge is not linked to trust, even though investors themselves might say it is, according to the research.

“Some factors that individuals say affect their trust, such as how tactical and knowledgeable the advisor is, aren’t actually mathematically linked to trust,” Chris Brown, a principal of Hearts & Wallets, noted in a statement. “Being knowledgeable in itself may be desirable, but it is not a way to build trust.”

Needless to say, advisors have much to gain from trusting relationships. Financial services providers in high-trust relationships enjoy average share of wallet that is nearly double that in low-trust relationships.  They also benefit from more referrals and future investments, Varas said.

Investors, too, win when they trust their advisors. Investors with higher levels of trust in their primary and secondary providers are more likely to seek help with tasks like choosing appropriate investments and retirement planning. They are also more likely to own more products and be more open to new concepts. They also tend to save more, though Hearts & Wallets could not establish a conclusive causal link.

Investors trust full-service brokerage and insurance firms slightly more than they do self-service brokerage firms, the report found. Edward Jones and Ameriprise were the most highly-trusted full-service brokerage firms, with 46% and 48% of their customers, respectively, rating them highly trusted. USAA was the most highly trusted self-service firm, with 58% of customers giving them a high trust rating.

The report, called “Trust-Building Practices: An Empirical Analysis of What Drives Trust,” is based on the firm’s annual quantitative survey of more than 5,400 U.S. households conducted last summer. 


Register or login for access to this item and much more

All Bank Investment Consultant content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access