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The Trust Issue

Do advisors understand the extent of the public’s mistrust? Are they doing enough about it?

I don’t think so.

Advisors have failed to embrace transparency as much as they should. Even NAPFA, traditionally the industry’s strongest advocate in the fight against unethical behavior in the financial services business, has missed the opportunity.

Many consumers who trusted advisors during the bull market are now skeptical, and those who were skeptical are now cynical. Worse still, consumers who were cynical of advisors are now in contempt of them.

If you don’t believe it, read the
comments from readers responding to reporter Ron Lieber’s article in this past Saturday’s issue of The New York Times, “How A Personal Finance Columnist Got Caught Up in Fraud.” Lieber bravely reported that he—The New York Times’ personal finance columnist—had hired an advisor who is now being investigated by the Securities and Exchange Commission for his connection to irregularities alleged to have been discovered in his clients’ accounts.

From the first reader’s comment (“The lesson I have learned is that you can't trust financial planners.”) to the last (“It is worth the time and effort, obviously, to be in complete control of one's assets.”), the public’s outrage boils over. Yet financial advisor discussion boards, trade magazines, and conferences are not addressing “the trust issue.”

There’s no mad scramble to find solutions, no urgency to address the trust issue. Look at the lack of comments on my blog posts in the past few weeks.

  • On March 11, in Closing A Door On Madoff Opens A New Era, I wrote that a new era for investment advisors had begun. “It’s an era in which trust is founded on undisputable proof presented at repeated regular intervals. Advisory firms must proactively adjust their behavior and business processes to succeed in this fearful new world.”

  • On March 12, a post entitled, “Your House Is On Fire,” chastised advisors for a lack of care in performing due diligence on alternative investments.

  • On March 19, a post entitled, The Elephant Wrecking Your Revenues said it plainly: “If you are not moving toward a more transparent relationship with clients, then you are not changing with the times and will be left behind. You will be crushed by the elephant.”

While this blog now has hundreds of readers every day, not a single advisor commented on any of these posts. It’s as if advisors don’t want to deal with the trust issue.

In my view, transparency through technology is the best hope for assuring clients they can continue trust you with their money and for convincing prospective clients that your firm can be trusted with their money.

I was fortunate enough to begin researching Web 2.0 technology three years ago and saw the beginning of the age of transparency unfold right before my eyes back then. That spurred the reinvention of my company, Advisor Products.

Advisor Products recently implemented a system that automatically records phone calls and automatically deposits audio files in each advisory firm’s folder in our CRM system. Every staff person here knows what he says to our clients is easily retrieved, encouraging outstanding service. I’m hoping to add even more transparency by allowing advisors to rate our performance for every service call we handle.

My research into Web 2.0 also caused Advisor Products to develop a
technology platform enabling advisory firms to practice with greater transparency to their clients. The platform extends CRM systems used by advisory firms beyond managing your staff to manage your clients. It integrates a CRM with personal client portals. It also interfaces with performance management software systems, enabling clients to see every transaction posted to their accounts.

We now live in an era of Google Earth, a twittersphere, a place where sophisticated investors will no longer be satisfied with mere promises about your honesty, integrity, and fidelity. They want proof. Either advisory firms reinvent themselves and figure out how to survive in this untrusting, fearful new world or online discount brokers will gain at your expense.

This information is, of course, self-serving. But that does not diminish its value or validity. I’ve aligned my business with my beliefs and values, and my strong desire to be honest. I encourage you to do the same. It also happens to be good for business.

Online Portfolio Reporting Upgrade
NAPFA Stained By Scandal




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