Price is Only an Issue in the Absence of Value

Price is Only an Issue in the Absence of ValueDo you know what your clients want or expect from you?A survey on client views, sponsored by the CFA Institute and entitled “The CFA Institute & Edelman Investor Trust Survey”, asked respondents which of the following factors were the most important to them in selecting an investment manager:


  • Trusted to act in my best interest – 35%
  • Ability to achieve high returns – 17%
  • Commitment to ethical conduct – 17%
  • Recommended by someone I trust – 15%
  • Compliance with industry best practices – 8%
  • Amount/structure of fees – 7%

While the question in the Survey related to investment managers specifically, we would argue the results are relevant to advisors and other industry participants as well.  Additional respondents, by more than 2-to-1, attribute picking an investment partner to the fact they can be trusted to act in their best interest. Returns were less important and fees were at the bottom of the list.These statistics should come as no surprise, given the fact the financial services industry plummeted after the 2008 financial crisis and the Bernie Madoff scandal.

Financial advisors who fail to establish trust before they even begin talking about what they do and how much they charge are putting themselves at a disadvantage. If this happens, on average, one out of every two prospects they speak with will turn them down because they didn’t establish trust from the outset of their relationship.

Do you think your clients trust you? Statistically speaking, they probably don’t. In this business, trust is the foundation of the client-advisor relationship.

In a study by Million Dollar Round Table (MDRT), looking at more than 1,800 adults with household incomes of $50,000 or more, 85 percent said they find it more difficult to trust financial professionals than they did five years ago. Ironically, the study also pointed out less than 50 percent are confident about their financial future and 90 percent say they are ready to talk to someone about it.

Getting business is good, but building and establishing trust is how you produce, as it typically leads to repeat or add-on business, as well as referrals.

The advisor-client relationship consists of three levels of trust, according to a report from State Street Global Advisors and Knowledge@Wharton, “Bridging the Trust Divide: The Financial Advisor-Client Relationship.” These levels are: trust in technical competence and know-how; trust in ethical conduct and character; and trust in empathic skills and maturity.

The first level, trust in technical competence and know-how, equates to a client’s trust in the advisor’s experience and knowledge of their field. Advisors tend to underestimate the importance of knowledge and expertise, according to the report. Just 26 percent say it is an important factor in serving clients, while 47 percent of clients view it as important.

You can demonstrate your technical competence through continuous professional development. When advisors invest in professional development and add credentials to their resume, it increases their credibility and ultimately their clients’ trust.

Trust in ethical conduct and character, the second level of trust, is simply a client’s trust that their advisor will not steal from them. The reputation of the advisor’s firm and the reputation of the advisor are both factors in this level of trust.

Trust in empathic skills and maturity may be the most important level of trust, according to the report. This level is the client’s trust in the advisor’s “relationship competence,” or the client’s trust in the advisor’s ability to handle interpersonal issues associated with providing financial advice.

Credibility and trust are intertwined, but trust is established before credibility. Establishing credibility is a three-step process, whereby the prospect or client must feel safe with you, must like you and must think you are relevant.

So how do you build trust? Keld Jensen, chairman of the Centre for Negotiation at the Copenhagen Business School, says there are four actions you can use to instantly build trust with your clients. Of course, after using these tips it’s up to you to continue to maintain and grow client confidence, but these tips will provide a strong foundation and a great starting point to work from:

Ask the Right Questions. Most consumers don’t know what financial plan or product they want. Some might not even be entirely sure how their investments are currently allocated. In addition to feeling you are competent, clients want to know you are willing to do a deep drill down to understand their current economic circumstances and their lifestyle goals.

The first questions you ask should be about the client’s personal life and family circumstances. Where and when does the client want to retire? What are his or her plans? What about traveling? How many kids does the client have? You need to develop an accurate picture of what your client’s ideal life will look like after retirement, before making any suggestions about investing or financial products.

Next, you need to use questions to get an understanding of the client’s financial situation and goals. What income will they have after they retire? Social Security? Pensions? IRA? 401(k)? For a person who just cashed out on a family business, an annuity might be the most appropriate product to guarantee income for life. However, for a firefighter who has a large pension lined up, an annuity might not be an attractive option. Always remember and be empathetic to the fact you are dealing with their life savings. Show them you can help solve their problems – from generating retirement income to dealing with long-term care.

Find Common Ground. People like to do business withlike-minded people, so it’s important you find common ground. This does not mean faking the same interests as your client. It means getting an understanding of your client’s personality type and decision making process and then delivering information in a way which best suits them. For instance, is your client data-driven or more intuitive? Would he or she rather hear you talk about life insurance policies or read about them? Test out a variety of ways of displaying information and see which ones resonate the most with the client.

Another great technique to facilitate an instant rapport is to mirror the client’s behavior, mannerisms and word choices. When you get on the client’s “level,” often an automatic psychological connection occurs without the other person even knowing why. A few items to try and match include the client’s posture, energy level, hand movements, facial expressions, and speaking tempo.

Sell Them What They Know. Investors are often frustrated by the complexity of financial products and just want a competent professional to make the process simple. One of the best ways to do this is to relate the products they are interested in to what they already understand.

For example, if you were discussing the differences between term insurance and whole life, you might pull out a document filled with rows and columns of data describing the different potential limitations and fee differences between the two. Alternatively, you could compare both types of insurance to the difference between renting and owning a home. Term insurance is like renting, since you pay for a specific number of years, the coverage expires, and that’s the end. Whole life, by contrast, is similar to purchasing a home with a fixed-rate mortgage. You own the policy for life, the premiums are level, and you build up equity in the cash value component. This approach is much more likely to build trust with a client than confusing him or her with an endless stream of data.

Keep a Promise. One of the fastest ways to build trust is to demonstrate you can keep a commitment. Make a promise early in your first meeting with a client, where you will do something on a specific day in the future – “friend“ him or her on Facebook, send a pamphlet, provide a follow-up phone call, mail a small thank-you gift – and then do it.

It’s important to be innovative, personal, and think outside the box about what you can do to demonstrate your trust and character. The internet has made this process easier and cheaper than ever, but if you have the opportunity to truly “WOW!” a potential client, take it! Think of it this way: if your client’s decision comes down to picking “Joe Smith advisor”, who sent a thank-you card as a follow-up, or you, who offered to give the client a ride to the office, who do you think made the bigger impression?

Jensen also warns to be careful not to assume you’ve become a client’s trusted advisor. “Every person has a different length of time (what I call their trust gradient) required before they truly have faith in their advisor. In the wake of scandals such as Bernie Madoff, this timeframe has grown exponentially. Do not become overconfident in your selling ability and rush the sales process before a real connection is built. Remember, there is no shortcut to trust.”

For more information on Summit Brokerage Services, visit or contact us at (800) 354-5528.

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