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  • Brian Kallback

A Lesson in trust from the shire

Updated: Jan 21, 2019


Article originally published in Telegraph Herald's bizTimes.

Kallback, B. (2018). A lesson in trust from the shire. bizTimes.


‘…it does not seem that I can trust anyone,’ said Frodo.” (Tolkien, 1994)


As he was running from the Black Riders, Frodo Baggins had to quickly reconcile the shocking news from his friend hobbits they had known his secret about the Ring for years. Though not holding the one Ring to rule them all, financial planners, hold clients’ dreams, goals, and objectives in our hands. Frodo had to trust his friends would stay with him during the intense struggles that lay ahead. Clients need to trust planners have their best interest in mind throughout a potentially difficult and sacrificial journey toward their financial future.


However, earning client trust has become difficult. A review of headlines highlights the muck created by those in the financial profession who damage the public trust.

  • "… inappropriate referrals or recommendations, including with respect to rollovers for 401(k) plan participants, certain alternative investments, or referrals of brokerage customers to the Company's investment and fiduciary services business" (Iacurci, 2018)

  • … [proprietary funds within the plan allowed] the record keeper of the plan to receive fee revenue from employees' plan dollars…and the funds were costly” (Mercado, 2015)

  • “…pushed participants in low-cost corporate 401(k) plans to roll their holdings into more expensive individual retirement accounts at the bank” (Wells, 2018)

  • “…agreement will give … investors who were misled when they were offered … unregistered securities the chance to get their money back, with interest, and re-invest it in a way that works best for them” (Longo, 2018)

  • “Nationwide, public school teachers’ 403(b) retirement plans are filled with the dregs of the investment world. High-cost mutual funds and variable annuities sold by conflict-ridden brokers dominate this charred landscape” (Isola, 2017).


Routinely, banks and other financial institutions are ranked low on surveys regarding consumer trust. The recent debate (and now demise) of the Department of Labor’s Fiduciary Rule contributed to consumer awareness about whether a planner was acting as a fiduciary. It’s difficult to comprehend how industry groups can state “brokers are merely salespeople whose investment recommendations cannot reasonably be included in the definition of fiduciary investment advice” and then these same companies turn around and market conflict-free advice (Roper, 2018). A SEC document recently drafted attempts to define a best interest standard yet doesn’t include the word ‘fiduciary.’ This awareness and attention on conflict-ridden models leads consumers to struggle why a financial planner wouldn’t act in their best interest. According to the 2015 Personal Capital Fiduciary Survey, “an overwhelming 94% of investors would ditch their broker for a trustworthy advisor if they knew he/she were not required to provide advice in their best interest” (Personal Capital, 2015).


So how do we develop trust within this climate of conflicts? Much of this is common sense and requires no strategy at all – be a selfless servant and always act in the best interest of a client.

Yet, if this common sense were actually practiced rather than simply marketed, the government may not feel the need to get involved. This article examines a few actionable strategies a planner can utilize: effective listening, branding and communication, and technology.


Many people, not limited to financial planners, often think of how to respond while another person is talking. Listening is not a strategy, but an outward sign of respect for others. Effective listening develops trust by creating an atmosphere where the client feels heard. According to Klontz, Kahler, & Klontz (2016), “truly listening to a client creates a lasting bond and an atmosphere of trust” (Lawson & Klontz, 2017, p. 50).


In addition to selfless service and listening, trust is defined through a firm’s brand and identity. “Clear brand strategy and communication build trust” (Kay, 2017, p. 29). Effective branding and its subsequent communication allow clients to focus on what the firm feels is important, what it values, and how it will interact with each individual client. Clients can measure their trust in the planner by how well actions align with branding, marketing, and communication.


Finally, the planning profession has morphed over the last decade to include more technology and robo-assisted projections. Humans often react to algorithms with initial distrust. This is problematic as planning conversations may include a combination of inputted data, simulations, and human interpretation. As artificial intelligence, the Internet of things, and augmented reality develop further, technology will occupy a larger sphere of the client relationship. Merrit & Ilgen (2008) describe how trust “in an automated aid shifts from being dominated by the user’s generalized propensity to trust to being dominated by the user’s history with that particular aid” (McCarley, 2018, p. 174). In other words, clients are using the planner’s credibility and relationship to initially trust the tool until they have enough experience to trust it themselves.


Trust can be difficult to obtain in our financial profession littered with conflicts. Though there are many ways to develop trust, common sense dictates to serve clients before oneself. Just as Frodo needed to trust that his hobbit friends had his best interest rather than their own personal gain, trust is gained and strengthened when clients believe their success will not be sacrificed for yours.


References


Iacurci, G. (2018, May 15). Wells Fargo struggles to attract 401(k) business in wake of banking scandals. Retrieved from https://tinyurl.com/ydxyvm8o


Isola, A. (2017, June 21). How can we fix a broken 403(b) system? Retrieved from https://tinyurl.com/yc7w8r7m


Kay, B. (2017) Build your brand to build client trust. Journal of Financial Planning, 30 (10), pp. 29-31.


Lawson, D. & Klontz, B. (2017) Integrating behavior finance, financial psychology, and financial therapy into the 6-step financial planning process. Journal of Financial Planning, 30 (7), pp. 48-55.


Longo, T. (2018, June 13). LPL to buy back 'illegally sold' securities to settle multi-state charges. Retrieved from https://tinyurl.com/y7s63w9u


McCarley, J. (2018). Automated decision aids: Understanding disuse and designing for trust, with implications for financial planning. In Client Psychology (pp. 167-180). Hoboken, NJ: John Wiley & Sons.


Mercado, D. (2015, March 26). Ameriprise to pay $27.5 million settlement in 401(k) fiduciary breach suit. Retrieved from https://tinyurl.com/y78osgq6


Personal Capital. (2015, July/August). 2015 fiduciary survey findings [Press release]. Retrieved from https://tinyurl.com/ydzx8wyb


Roper, B. (2018, April 12). 5th Circuit 'Victory' Exposes Fiction Behind Brokers' Claims to Act as Trusted Advisers. Retrieved from https://tinyurl.com/ycpum6kw


Tolkien, J. (1994). The fellowship of the ring: Being the first part of the lord of the rings. Boston: Houghton Mifflin Company.


Wells Fargo's 401(k) practices being examined by Labor Dept: WSJ. (2018, April 26). Retrieved from https://tinyurl.com/y8dbjpof

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