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Point/Counterpoint: The Best Way to Build Consumer Trust

By Patrick Canion, CFP and Cora Pettipas, CFP

Patrick Canion, CFP from Australia says eliminating remuneration bias:

The best way for financial planners to build consumer trust is to have no remuneration bias in the investments that you recommend. Make sure that, regardless of which trust, investment fund, or even class of investment (shares, property, managed funds) your method of charging remains the same. Equally, scrap any commissions based on the size of an investment.

Why? Because there is no clearer signal that you are acting as a fiduciary for your client than to show that your pay is your pay, regardless of where their money is invested. It puts them completely at ease when they know that you are recommending a particular type or amount of investment because it is right for them, not because it is right for you.

This doesn’t mean you can’t have a bias for quality or efficiency. For example, we have a preferred investment platform and managed fund list that we use. But it is a quality bias, not a commission bias. If a client prefers another platform, well that’s ok and they know that any changes are in their best interest.

The same goes with specific investment recommendations.  We may instruct a client to sell an investment property and invest in shares. With no investment commissions, clients know that we are doing this for their best interest, not to earn additional revenue or make a sales target.

By eliminating remuneration bias, you truly open the door to being your client’s trusted adviser.

Cora Pettipas, CFP from Canada says by being trustworthy:

Although removing remuneration bias could help build trust with a client, I do not think it is the best way to build trust. Although it is a good concept, I feel it is impractical in most cases. Financial planners that work for major financial intuitions (FIs), whom are the majority, do not get a say in how they are remunerated, the compensation scheme is built by management. Even an independent financial planner that sells products is beholden by the product manufacturers. In my opinion, compensation will never be perfectly equal, just as industry regulation will never be perfectly fair. Why? Because it is not a perfect world. If there is not a systemic solution, then how can financial planners build trust with their clients?

Simple. By being trustworthy. I gave this answer to a manager I had at a large FI early in my career. She wanted me to give a presentation on how I got clients to open up and move their assets over so quickly. She was greatly disappointed by this answer.

Being trustworthy is hard work. It means putting your client’s interests before your own. It means having longer meetings where you just listen, with no agenda other than to find out as much as possible about the client and help the client focus on what they want to do with their precious resources: their time and money. It means saying to a client, ‘I do not know,’ when you do not know something, and finding out within a specified timeline and giving them the answer. It means doing what you say you are going to do, and educating yourself at every opportunity. If you estimate a financial plan will take two weeks to build, you tell the client you will present it in three, to give yourself a buffer so you do not let them down. In terms of compensation, it means disclosing how you make your money from the work you do with your client and the value you provide them. It means not leveraging the client to invest because it gets you closer to your quota and makes your manager happy. Most importantly, building trust with your client means holding them in the upmost respect and protecting their personal information as well as their assets.

Be their trustworthy ‘trusted advisor.’

Patrick:

Cora’s response is excellent and I can’t argue with her intent. It also reveals one of the great benefits of this blog: the exposure we all get to different regulatory regimes. For example, in Australia, starting in July, it will be illegal for financial planners to take commission on investment funds.  Asset based fees are ok, but not on geared investments.  And, a ‘Best Interest’ duty will be legislated, moving beyond just good intentions into a legal standard.

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Please comment below to let us know what you think the best way to build consumer trust is:

1 comment to Point/Counterpoint: The Best Way to Build Consumer Trust

  • `Here in the US, no one has addressed the industry redefing issue of whether trade execution is cost center to be minimized in the best interest of the investing public as required for fiduciary standing, or is a profit center to be maximized for those engaged in a commission sales capacitry where they are neither accountable for their recommendations nor have any ongoing fiduciary responsibilities.

    There is no trust engendered in the later which is achieved in the former. It is that simple.

    When the advisor is accountable and responsible for their recommendations, on then is it possible for trust to be restored.

    SCW

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