During times of volatile market conditions it is challenging to build confidence in the financial system.
A stable financial system is the foundation that trust is built upon. Challenging economic data and political uncertainty can slowly erode the foundation. People who are investing today must trust that the markets will get through these difficult times and reach higher levels in the future.
In addition to trusting the financial system, it is important to build trust between you and your advisor. Unfortunately trust generally does not come instantaneously. It is a two-sided process that results from the consistent commitment and open communication between you and your advisor or portfolio manager.
Trust should grow over your relationship. If trust is not being built up over time then the relationship is likely not moving in the right direction.
Every relationship has not only mutual trust, but it also has responsibilities unique to you as the investor and your advisor. An advisor is hired to share his or her investing knowledge with you, develop your unique financial plan, inform you of your portfolio’s performance, notify you of potential opportunities, answer questions, and refer you to other internal specialists and external professionals, such as a lawyer or an accountant, when necessary.
You, as the investor, are required to be clear and honest about your risk tolerance and financial situation. Communicating your investment knowledge and past investment experiences with your advisor is an important start. Keeping your advisor aware of any changes to your current circumstances and preferences are also key components. Have you gathered all of the relevant information to have an up to date and accurate financial plan? Have you set realistic expectations? Are you looking short-term or long-term?
Open and balanced communication is one important component to building trust. As an advisor, if I didn’t do something right, or if it could be done better, I would want my clients to tell me.
Being able to give constructive feedback to your advisor is essential. Personally, I lose trust immediately in advertisements of financial products that only highlight the potential return and exclude the potential risk (or have it in small print). A balanced discussion of a new investment idea should summarize both the risks and potential rewards. No advisor has a crystal ball – market rallies and declines are simply unpredictable.
Competency is a big component to building trust. If an advisor has the related designations and credentials then it shows an effort to obtain knowledge that will help their clients. Ongoing continuing education helps advisors stay current with professional development. Experience is equally as important. An advisor who has helped clients through various market cycles will have a greater depth of knowledge on the psychological feelings that investors go through.
It is important to have total confidence that your advisor will act with integrity on your behalf, is competent in their field, has a personality compatible with your own, and whose actions are consistent with what they say. When searching for a new advisor it can be hard to start a trusting relationship without these things previously established. This is where referrals from friends, family, or other professionals can help you feel a stronger connection with an advisor from the very first meeting. The individual making the referral already believes the advisor to be credible and their trust has grown out of respect for their advisor’s hard work. When you make a referral you are putting your own trustworthiness at stake; therefore, if someone refers an advisor to you they trust the advisor to manage their assets and have confidence that the advisor will be reliable and act with the integrity, competency, and empathy when managing your assets. Although it may be difficult to form a trusting relationship with someone new, trust is crucial for a long term relationship with your advisor.
If you find it hard to trust your current advisor, or one you are meeting for the first time, then the relationship is likely not the best fit for you. Consider asking a friend or family member for a name of a financial advisor they trust. While establishing trust does take time, transferring trust among people can be extremely helpful in forming a solid relationship built on integrity, competency, rapport, and above all, trust.