The most critical aspect of advising is having advisor-client relationships that are built on trust. Too many financial advisors oversimplify the trust-building process; they assume that good investment performance and a timely response to servicing requests are all they need to maintain solid working relationships. Unfortunately, these assumptions lead to reactive relationships that depend on others—the market or the client—to move first. A more powerful approach is to be as proactive as possible: to act first.
A timeless principle that can guide a proactive approach can be found in Merriam-Webster’s Dictionary, which defines client as a person who is “under the protection of another.” I think this perfectly describes the essence of being a trusted advisor. If you’re protecting your clients, you’re thinking about what might hurt them and what they might be missing. You’re responding to what they tell you they want and going beyond by educating them about what they actually need.
A Closer Look at How Trust Works
Recognizing the need to be proactive is your first step. Next, it’s important to understand the components of a trusting relationship. I see trust as a simple equation with five variables. Each piece contributes to a client’s level of trust in you:
Trustworthiness = Consistent Experience of Goodwill and Professional Competency Over Time
Let’s take a closer look at these five active ingredients.
1. Consistency. Being insightful, calm and engaged on a regular basis allows you to become a character of significance in your clients’ lives. They will come to rely on you. In contrast, if you’re inconsistent in these traits—if you miss important events in your clients’ lives or aren’t paying attention to what’s happening in the world that can impact them—your clients will learn that you aren’t trustworthy. No one will sustain a consulting relationship with a professional he doesn’t trust.
2. Experience. Clients need to experience your skill and your engagement. These experiences provide evidence that you fulfill your promises and set you apart from others who fall short when it comes to delivery. (For more guidance on how to design intentional client experiences, see the AllianceBernstein Advisor Institute’s white paper Inside the Mind of the Uniquely Successful Investor.)
3. Goodwill. There are two questions clients wonder about their advisor: “Do I matter to you?” and “Do you get me?” The first is essential; if there’s any lack of evidence of caring, a working relationship is impossible. The second question stems from a client’s desire to know that her advisor understands her deeply. Achieving a deep and accurate awareness of what is most important to a client creates a bond that’s hard for another provider to break and protects the relationship.
4. Professional Competency. Because the relationship between an advisor and a client is one in which a fee is exchanged for services, compelling evidence of the advisor’s skill matters. In fact, any suggestion of lack of skill makes it impossible for the client to continue the engagement.
It’s important to consider how you demonstrate your professional competency. Many advisors rely on portfolio performance to provide evidence of their skill, such as by saying, “Look how much your portfolio grew” or “See how your investments compared to the market.” But this reactive approach puts your relationship at the mercy of forces you do not control. Instead, the prudent advisor sees performance as a small part of a larger body of evidence of his skill. He shows clients how deeply he understands their needs and advises them across a wide range of investment and wealth-management issues. This proactive approach ensures that clients witness a continuous flow of experiences that confirm value.
5. Over Time. The final active ingredient of trust is the passage of time. While this may sound like a force that’s out of your control, it’s something that you can be proactive about. Delivering experiences of goodwill and professional competency consistently over time allows trust to build up. Most advisors know that long-term clients are more trusting than new clients. Fortunately, you don’t have to wait for time to pass to build deeper bonds of trust. Delivering more experiences of goodwill and competently executing more interactions accelerate the trust-building process.
Upon reflection, you will notice that these five parts of the trust equation are the building blocks of any good relationship. In a world filled with financial professionals all looking for new clients, intentionally building deep bonds of trust will protect your business and help you stand out from the crowd when prospective clients ask friends and neighbors about whom they work with. For a great reminder of the importance of a building a trusting relationship, ask your AllianceBernstein wholesaler for a copy of the AB Advisor Institute’s “client definition” print, suitable for framing and displaying in your office.
For more resources from the AB Advisor Institute visit http://alliancebernstein.com/go/abai.
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.