The importance of trust for clients when choosing a financial adviser

18 Jun 2024

First seen on Professional Adviser

Trust is fundamental in financial advice. We are helping people to make and achieve financial plans, and if things were to go wrong it would probably be too late by the time they find out.

Cementing that trust is about understanding your customers' hopes and dreams for retirement and building a financial plan around these. To this end, for the last eight years or so, Dunstan Thomas have run several consumer studies to understand how different generations of people across the UK are doing in terms of access to, and experience of, financial advice.

We have dedicated two consumer studies to the Baby Boomer generation due to their vital importance for financial firms. These studies have explored Baby Boomers levels of long-term savings and their retirement expectations. The insights gleaned from these generational studies have often caught the headlines.

Importance of regulated financial advice

However, perhaps the most glowing endorsement of financial advice we received so far came from our first study of Baby Boomers.

The study found that of the 51-74-year-olds we surveyed in 2017, those using regulated financial advice stood to have total pre-tax household retirement income that was a massive 39% higher than those who had made all their retirement income provisioning decisions alone.

Dunstan Thomas found evidence in each of our Baby Boomer research of a clear and growing need for financial advice in readiness for retirement. People may need financial advice for multiple reasons including working out how to turn their pensions savings into an adequate retirement income which lasts for the rest of their life, especially bearing in mind increasing reliance on more flexible defined contribution (DC) pensions amongst this generation, and the multiple decumulation options now at a retiree's disposal following pension freedoms.

Some options are simple: should I aim to retire earlier now that I can access my pension from age 55 or would a period of semi-retirement make more sense? Then, when in full retirement, should I buy an annuity, use an income drawdown plan, or do a combination of these two options simultaneously? Instead, should I be cashing it all in, or the reverse, try to keep it invested and intact until much deeper into retirement?

New options like collective DC (CDC) decumulation will also emerge in due course.

Some in our 2022 study expressed a need to get financial advice for any (or multiple) of the following: inheritance tax planning, manage gifting to children and grandchildren, pension consolidation or de-risking investment portfolios. Others expressed concern about managing a smaller retirement income pot than they were used to when they were in full-time work, particularly bearing in mind the real risk of ‘over-drawdown' (from their DC drawdown policies).

So, why are only a quarter of Baby Boomers using regulated financial advice before they retire?

Is the reason that a large proportion of boomers approaching retirement do not utilise regulated financial advice due to perceived affordability?

We believe that it is it more complicated than that. Dunstan Thomas research shows that 37% of Baby Boomers have used a financial advisor at some point in their lives, indicating that many more had been convinced about the value of regulated advice in order to get a professional, third party opinion on financial planning matters earlier in their working lives.

However, many of these historical advice experiences will have been supported by tied agents in the era of provider-employed direct sales forces pre-Retail Distribution Review before the advice gap emerged. Some of the advice may have been less than optimal back then. Trust may have been lost, in some cases forever.

If trust is one of the factors which needs to be nurtured if IFAs are to capture more of the burgeoning market for retirement-linked financial advice, then it is worth considering how trust can be reliably built, nurtured and preserved by UK financial advisers.

To extend our understanding of 'trust', we turned to the American business consultant and author Ken Blanchard who collaborated with other customer service gurus to create the ABCD of Trust.

The ABCD of Trust

• A - Able. When you're able, you demonstrate competence to others. Your work is of a consistently high standard. You use your initiative to solve problems. You can be relied upon to help others, and you are always striving to be the best you can be
• B - Believable. People who are believable have integrity. To strengthen your believability, always be honest and up-front with your colleagues. Even little white lies can undermine their trust in you, as can deliberate omissions designed to mislead them.
• C - Connected. People who are connected care deeply about others. They have good relationships, show interest in their companions, are empathetic and are willing to share personal information about themselves to help establish meaningful relationships.
• D - Dependable. When you're dependable, you keep your word, and you do what you say you will. You're organised, accountable and consistent with your work and words.

How financial advisers can build client relationships with trust

We decided to translate these well-researched building blocks of trust into the real world of adviser/client interactions to see if advisers can engender trust more reliably, particularly in their use of the technology.

• A - Ability with technology. When you are using technology to present a customer's investment, or retirement journey if they are in their late 50s, it will be important to illustrate how they will be able to afford retirement, detailing which assets will need to be sold, which bought and which assumptions must be made. Advisers need to support your credentials to give advice by showing that you also know how to present using the latest equipment, collaboration software and platform tools. All the evidence suggests that the younger the customer the more important evidencing tech ‘savviness' becomes for trust building.
  
  Mastery of technology in the back office is of course one key to being able to look after more clients per qualified adviser in a compliant and fully auditable manner should the regulator come calling. Increasingly, this will involve the adoption of AI tools to minimise the administrative workload and allow advisers to focus on the more value-adding and indeed satisfying aspects of being an adviser.
• B - Backing up facts, figures and recommendations. When displaying retirement income sources and projections for future retirement income, for example, it is valuable to use other respected sources and references to back up your thinking and assumptions. You could use a second tool that backs up your original projections, perhaps offering stochastic modelling of projections, in addition to the statutorily required deterministic ones.
  
  Alternatively, enable them to reach out to another of your customers who was in a similar retirement savings position as them, a number of years before but has since moved into decumulation. Better still, you might have commissioned a short video testimonial so that exemplar customer's experience heading into retirement is made more real for your new customer.
• C - Connection with customers. Establishing a strong connection with your customers requires being open to regular as well as ad hoc catchups. These will be driven as much by when your customer wants to talk to you, perhaps due to changing circumstances or new life event, rather than requiring them to wait until those timetabled annual review sessions. In this way, you make sure you understand what your customer really wants to do in retirement and establish what aspects of their work situation might lend themselves to an earlier or later-than-expected retirement. You ensure their investment and/or retirement plans are in tune with changing circumstances and expectations.
  
  Indeed, the more you know about their wider family situation, any family businesses, the independence levels of their children, and favoured retirement lifestyle choices etc., the easier it is to map a retirement income plan that fully fits your customer's needs. Tighter ‘connection' with them breeds greater relevance and stronger trust.
  
  Again, prove that you are interested in building good relationships with customers by evidencing happy customers – asking them to leave Trustpilot, Google and Facebook reviews. Promote these reviews through your social channels. Display testimonial quotes and shoot video testimonials which reference your personal touch with customers to help build and maintain trust and eliminate any cognitive dissonance between how you want to be presented and what your perception as an organisation says about you online.
• D - Dependability in advice and communication. You become more dependable by always keeping your promises. Take that thinking into all adviser/client communications, even the automated comms. For example, if you are using a platform to manage your clients' investments, make sure it is providing lots of personalised and accurate progress updates.
  
  For example, if a customer has green-lit a de-risking of their portfolio as they approach age 75 (when they plan to buy an annuity with remaining assets to provide retirement income for the rest of their lives), are you providing timely updates to that customer as holdings are being sold down and moved into cash or cash-like assets? Can these updates be provided on the communication channel which works best for that customer- whether that be via text, email, and encouraging them to go into the secure portal to find out more.
  
  This sort of regular, timely updating gives reassurance to the customer that you are doing precisely what you said you would do, and you are doing it within the timeframe that you promised. In short, your customer communications confirm your ‘dependability' while also creating opportunities for re-engagement.

Trust is a vital but ethereal quality in our industry. It needs to be continuously earned. We should always be searching for opportunities to build and reinforce it through our behaviours.

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