Trust: A key component for growing your advisory business

26 February 2019 | Don Bennyhoff


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Focus on building trust with clients

What can you do to grow your business? For most advisors, the simple answer is to generate referrals from their existing client base.

Vanguard researchers found that the single most important factor in generating client referrals was for advisors to build a high level of trust with their clients. As part of its research, Vanguard surveyed thousands of investors and found that clients who highly trusted their advisors were more than twice as likely to refer their advisors compared with clients who had a more moderate level of trust.

"It may seem obvious that clients who trusted their advisors were more likely to generate referrals. But the level of impact trust—and also a lack of trust—could have on an advisor's business was quite startling," said Vanguard Senior Investment Strategist Don Bennyhoff, one of the authors of the research.

Trust motivates referrals and drives asset retention

Trust comes into play not only for referrals but also for client retention. Researchers found that clients who had a low level of trust in their advisors were 35 times more likely to end the relationship compared with clients who had a high level of trust.

So what can advisors do to build trust? Mr. Bennyhoff said advisors must be committed to making connections with their clients.

"You can't just wave a magic wand and create trust with clients overnight," Mr. Bennyhoff, a former advisor, said. "Advisors have to put in the work. Client relationships are complicated, and what builds trust with one client may not work as well with others. Our research suggests higher levels of trust are associated with longer-term client relationships."

Trust means different things to different people

Ethical trust occurred when clients believed their advisors were acting in their best interests at all times and not recommending a product because it might help their firms' bottom line. The researchers found that 30% of clients said that ethical trust was the most important component of an advisory relationship.

Functional trust was created when clients believed their advisors were going to follow through with what they said they would do. Some 17% of clients surveyed held this to be the most important component of an advisory relationship.

A majority of clients surveyed (53%) said emotional trust was most important in their advisory relationships. The majority of clients defined emotional trust as an advisory relationship that helped give them peace of mind about their financial futures.

"It's not surprising that emotional trust was the most important component for a majority of investors," Mr. Bennyhoff said. "Investing is an emotional experience, and advisors understand that. Advisors bear a great responsibility. They have their clients' financial futures in their hands."

The components of trust

Get to know your clients

Bennyhoff said that to drive trust in your client relationships you should focus on making sure that clients feel valued, that they are respected and that their objectives and feelings are understood.

"It's tempting to equate relationship management with customer service, but that's an incomplete picture of relationship management and the scale of the benefit if done well. Relationship management is business development," Bennyhoff said.

The researchers found it was important for advisors to pay attention not only to what they said to clients but how they said it. To help clients feel their advisors genuinely care about them, advisors need to understand what their clients value the most. For many clients, it's their families.

"Asking a client, 'How are Judy and Jimmy?' says something entirely different about how well you know them rather than simply asking, 'How are the kids?'," Mr. Bennyhoff said.

Communicating with clients effectively means hearing what they have to say and treating them as respected partners in the advisory relationship. Small nuances can make a large and lasting impression. In turn, a negative impression based on one bad experience can be difficult to overcome.

Make sure you have time for your clients

Finally, make sure you don't overextend yourself by taking on more clients than you can effectively serve. Knowing how often and how a client likes to be contacted will help you manage the time that you're available to the client.

"Trust must be nurtured opportunity by opportunity, and that takes time. For the typical advisor, time is in short supply," Mr. Bennyhoff said. "Time is an asset to be invested. If an advisor doesn't have time to engage clients, clients won't feel valued. The problem with an advisor having a lack of time to devote to his or her clients will quickly resolve itself since underappreciated clients will leave for an advisor who does have time for them."

Important information:

The views expressed in this material are based on the author's assessment as of the first publication date (January 2019), are subject to change without notice and may not represent the views and/or opinions of Vanguard Investments Canada Inc. The authors may not necessarily update or supplement their views and opinions whether as a result of new information, changing circumstances, future events or otherwise. Any "forward-looking" information contained in this material should be construed as general investment or market information and no representation is being made that any investor will, or is likely to achieve, returns similar to those mentioned in this material or anticipated in this material.

This material is for informational purposes only. This material is not intended to be relied upon as research, investment, or tax advice and is not an implied or express recommendation, offer or solicitation to buy or sell any security or to adopt any particular investment or portfolio strategy. Any views and opinions expressed do not take into account the particular investment objectives, needs, restrictions and circumstances of a specific investor and, thus, should not be used as the basis of any specific investment recommendation.

Please consult your financial and/or tax advisor for financial and/or tax information applicable to your specific situation.

While this information has been compiled from sources believed to be reliable, Vanguard Investments Canada Inc. does not guarantee the accuracy, completeness, timeliness or reliability of this information or any results from its use.

Information, figures and charts are summarized for illustrative purposes only and are subject to change without notice.

This material does not constitute an offer or solicitation and may not be treated as an offer or solicitation in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so.

In this material, references to "Vanguard" are provided for convenience only and may refer to, where applicable, only The Vanguard Group, Inc., and/or may include its affiliates, including Vanguard Investments Canada Inc.


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