Amid increased industry scrutiny and regulatory oversight, the advisor-client relationship is thriving—and that’s a foundational strength the industry must build upon to sustain itself.
It’s well-established that clients like and trust their advisors. The BCSC’s National Smarter Investor Study, published in 2016, found that 90% of respondents nationally described their level of trust in their advisors as strong or very strong. Further, 91% of investors in the 2016 study said they were comfortable bringing concerns and questions to their advisors.
And despite negative media coverage in 2017 about strong-arm sales tactics at banks, a poll that year by Environics for Hennick Wealth Management found that, on average, only 3% of Canadians who use financial advisors were dissatisfied with services received.
That the perception of the financial industry could benefit from a PR boost makes advisors’ likability all the more impressive. A global CFA Institute survey released earlier this year found that 51% of Canadian investors “completely trust or trust” the financial services sector—a majority, sure, but underwhelming relative to advisors’ likability. (To be fair, the 51% figure has been rising since 2013 and compares favourably to 44% of investors globally.)
Read: Why a client chooses you
Further, likability is advisors’ secret weapon in the battle against online competition. Technology can’t replace likability for advisors, asserted U.S. advisor Josh Brown at the T3 advisor conference in Florida in February. The CEO of Ritholtz Wealth Management urged advisors to capitalize on their likability by harnessing their authenticity and personality to create an online presence.
These are all affirming indicators for advisors. But regulators have uncovered the shadow side of likability. The BCSC investor study, referenced in 33-404’s targeted reforms proposals, says investors’ strong trust in advisors leads some to ask fewer questions about advisor compensation and to place less importance on reading account statements because they’re confident advisors are taking care of their money. The study informs the expectations gap—one of the key investor protection concerns 33-404 aims to address.
But addressing this and other gaps won’t be effective if proposed regulation doesn’t support the demonstrably strong advisor-client relationship. Leveraging cross-industry expertise, as regulators have begun to do with behavioural finance, might help illuminate the way forward, since relationships and trust are fundamental to all industries. More to the point, the 2018 Edelman Trust Barometer finds that, globally, financial services is the least trusted sector, so it has plenty to learn from others.
A useful example is healthcare, the seventh-most trusted industry. Back in 2004, homecare transparency issues were highlighted in a report that referenced a paper by Dr. E. Gedge. The report said that a moral, paid caregiver/client relationship must reflect the needs and interests of the client, undistorted by the caregiver’s needs and interests. The report went on to say that “such a relationship is clearly impossible where the caregiver must worry about how her own needs are to be met,” referring to caregivers’ low wages and lack of full-time hours. A comparison could be made to sales incentives and commissions.
Potentially instructive for prescriptive regulation like KYC forms, the report also highlighted the ineffectiveness of caregiver checklists—itemized steps to complete when providing care. “A checklist does not respect the abilities of the care providers,” the report said. “It limits their full involvement in the care, and turns the provision of care into a mechanical series of steps.” The result: less empathy and more impersonal service.
More recent healthcare research provides further transferrable insights, such as how much information to give patients (answer: depends on the doctor’s goal), and whether patients are more likely to become involved in their medical care when they trust the profession versus individual doctors (answer: the profession). The latter finding could indicate that a boost to industry reputation would do more to address regulators’ concerns than focusing on the negatives of advisor likability.
Cross-industry research could result in a more nuanced way of seeing financial services. It could also help in assessing the role clients play—an important part of the discussion that the BCSC and others have highlighted. All regulatory reform should be assessed for its effect on the advisor-client relationship. The profession should not focus on weaknesses to the detriment of building on strengths—specifically its foundational one.
Michelle Schriver is assistant editor of Advisor’s Edge. Email her at email@example.com.