Vanguard Research Examines Drivers Of Trust In Advisory Relationships

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Oct 17, 2017, 09:00 ET

VALLEY FORGE, Pa., Oct. 17, 2017 /PRNewswire/ -- Vanguard recently published a new research paper that examines the importance of trust in the advisor-client relationship. The research reveals that while a predominant number of investors trust their current financial advisors (eight in ten give their advisors a high trust rating), nearly one-quarter had an experience that undermined their trust in their current or previous advisor.

Authored by Vanguard's Center for Investor Research, Trust and Financial Advice introduces a three-part model that examines the functional, emotional, and ethical elements of trust:

Functional trust is described as investors' confidence in their advisors' credentials and skills and in the day-to-day operation of their advisors' practices. Advisors can establish functional trust by presenting their industry qualifications, creating and executing financial plans, and being proactive with their client communications.
Emotional trust is the intangible aspects of the relationship between the investor and financial advisor that bring about positive feelings or sensibilities in the investor. Examples of emotional trust are investors saying their advisor is "my advocate," "provides a sense of relief," and "makes me feel my portfolio is important."
Ethical trust involves advisor practices or behaviors that are consistent with socially set expectations of correct conduct. Advisors can instill ethical trust by removing conflicts of interest, charging reasonable compensation, and acting in the best interests of the client.

"While we've inherently known that trust is vitally important to investors when working with advisors, we were able to uncover through our extensive research both the drivers of trust and practical ways advisors can build it," said Anna Madamba Ph.D, author and senior research analyst in the Center.

The top two drivers of trust, according to the study, are "advocating for a client" and "acting in the client's best interest," though numerous other attributes are identified as having a significant impact on trust. The research also draws a connection between high trust levels and positive business outcomes for advisors, and provides recommendations for the global advisor community for proactively managing client relationships to build client trust and loyalty.

Vanguard's Center for Investor Research is dedicated to the study of individual investors across all types and demographics, and augments Vanguard's mission to drive investor success through behavioral research and experimentation. This paper is a part of an ongoing, proprietary research series, Advised investor insights, that provides actionable insights on investor behavior. The first installment in the series, How investors select advisors, identifies five investor profiles you can use to connect with clients and highlights strategies for boosting client referrals.

About Vanguard
Vanguard is one of the world's largest investment management companies. As of September 30, 2017, Vanguard managed $4.7 trillion in global assets. The firm, headquartered in Valley Forge, Pennsylvania, offers more than 370 funds to its more than 20 million investors worldwide. For more information, visit vanguard.com.

SOURCE Vanguard