Trust is key to HNW market

By Steven Lamb | October 27, 2010 | Last updated on October 27, 2010
3 min read

It is the cornerstone of every successful relationship, whether it’s with your spouse, your doctor or your client. So why aren’t all advisors masters at building trust?

“Trust is cumulative; it is not built in a day, it is built over time,” said Joe Calabrese, president of Harris myCFO, speaking at the Strategy Institute’s 12th annual Marketing Wealth Management Services to High Net Worth Individuals Summit.

“The importance of trust should be obvious. The more client’s trust you, the less they will second guess you, the less they will grind you on prices or fees,” he explained. “If they do trust you, they are more likely to refer you business, take your calls and forgive the occasional mistake.”

Despite the importance of trust in the advisor-client relationship, avoidable mistakes are still being made. Among these, an over-emphasis on investment returns, opaque compensation structures and a product, rather than service, orientation.

The good news is there are only a few variables that the advisor must master to nurture client trust, and advisors generally have a high degree of control over these variables.

Trust is built upon three pillars: technical competence and know how; ethical conduct and character; and empathy and maturity.

Among these elements of trust, the advisor has the most control over competence, as additional training and education builds up one’s skill sets.

Many advisors underestimate the importance clients place on knowledge. Calabrese points to a study that found 26% of advisors believed it was the most important factor in serving a client well, compared to 47% of clients.

It comes down to a simple question in the mind of the client: Can I trust that you know what you are doing?

He also draws a distinction between knowledge and competence: it is not enough to present the client with the information you know – it must be presented in the context of understandable advice.

Also largely in the advisor’s control is his or her ethical conduct and character, but the client’s perception of these factors can be easily distorted. The advisor must be aware of the reputation of his or her firm, as that will have an impact on the advisor’s own reputation.

The question in the client’s mind is: Can I trust that will not steal my money?

Perhaps the most sensitive element of trust, however, is the level of empathy and maturity the advisor projects. Calabrese defines these characteristics as the ability to integrate financial and personal information, and the ability to handle personal information with tact.

The underlying question for the client on empathy is: If I tell you personal things about myself or my family, can I trust you to handle it well.

This can be a double-edged sword, however, as the client will be less trusting if they feel their advisor’s empathy is a veneer put forth simply to facilitate the sale of a product.

Often trust can be unduly eroded by an advisor’s business model, and pricing practices can taint the trust of the high net worth client.

“If you were to lay out your compensation model to a client, would there be anything built into that compensation framework that would give the client the appearance that what you advise them on might not be in their best interest?” he asked.

“Which client wouldn’t have a preference for an advisor who’s totally independent and objective, versus an advisor whose primary motivation is self-oriented?”

He points to the formula presented in The Trusted Advisor, by David H. Maister, Charles H. Green and Robert M. Galford, which states trust is built up by competence, intimacy and reliability, but is undermined by self-orientation.

Calabrese says the sense of self-orientation can be based on pricing practices, compensation structure and a focus on product, rather than advice. The perception alone of self-orientation can be enough to drive a wedge between the client and the advisor, and probably endangers the relationship.

“If clients perceive that your actions are motivated by self, rather than them, it can have an irreparable impact on the trust equation,” he says.


Steven Lamb