It seems like a pretty straightforward question. Until a year ago, we probably didn’t give it much thought. Now, it seems like everyone is asking that very question. Your clients are asking it about you right now. Do they trust you to manage their money? If their portfolios are way, way down, they may be starting to wonder.
Even financial writers aren’t immune to these uncertainties. A writer I know has his brother — a big-wig at a very reputable broker-dealer — manage his money. As the market melted, their buy-and-hold mentality was tested. Well, they passed the test, but they lost 50 percent. Does that mean my colleague doesn’t trust his brother? Of course not. I’m sure he trusts him with his life. His life savings, however, may be a different story.
Financial advisors are asking themselves similar questions about trust. Do I trust my broker-dealer? Do I trust my firm’s research? Do I trust I still have a job? I’m sure Lehman Brothers and Bear Stearns reps trusted their broker-dealers right up to the bitter end of their stock options and jobs.
The trust issue has spread to the product companies as well. With many insurance firms struggling for survival, do your clients trust that all those great VA guarantees will be honored? Do the employees at those companies trust they still have jobs? One big mutual fund company recently played a round of American Idol with its employees. Groups of employees were directed into several rooms. The firm’s version of Simon, Paula, and Randy then went from room to room and told the occupants that they either made it to the next round (kept their jobs) or that it was the end of the road for them.
A pervasive lack of trust does funny things to people. It makes them rethink their life choices. Maybe burying money in a mayonnaise jar in the back yard wasn’t such a bad idea. After all, you can’t get bad advice from a hole in the ground. Maybe a career in financial services wasn’t the best idea either. Maybe we shouldn’t have substituted our dreams for the lure of a bigger paycheck.
Over the past year, I’ve talked with a great number of advisors and have conducted some very sophisticated research. Ultimately, I discovered that this breach of trust has herded advisors into three distinct categories: