Imagine your doctor asked you to lose 10 pounds but you demurred. Maybe he’s telling all his patients in order to lower demand for Twinkies and the like so he can have more affordable access to junk food for himself.
That scenario is, of course, utterly absurd. Nobody would suspect a medical professional of short-changing a patient for such crass reasons, yet something along those lines does nag at the conscience of investors in their quest for financial advice.
They worry that the professionals proffering the advice are pushing products from which they themselves will profit but which may or may not be good for them, and even if beneficial, perhaps not optimal.
That is why, says Bob Stammers, the CFA Institute’s director of investor education, so many people looking for financial advice go to friends and family when they have important decisions to make.
Ironically, the friends and family members may have little knowledge about finance; the advantage they have is that they are not suspected of having any ulterior motives. In short, they are trusted.
“People really want that education and information at the point of decision making,” says Stammers in an interview with our sister site, ThinkAdvisor.
“When they make decisions, they usually ask for advice,” he continues, “so an advisor can offer advice at time when people are willing to digest it.
But to do that, you have to build relationships of trust,” something the financial services industry is uniquely ill-equipped to do, says Stammers, who notes the industry remains in its familiar dead-last spot on an annual global survey of trust, well behind the automotive and pharmaceutical industries, and even taking a back seat to media and banking.
But this industry and societal problem can in some sense provide an “opportunity,” says Stammers, for individual advisors to build trust one investor at a time.
To further that ambition, the CFA Institute is actively promoting its Statement of Investor Rights, a campaign aimed at empowering consumers through awareness of what they should expect from the professionals serving them.
The 10-point list includes the right to objective advice (No. 2), to disclosure of existing or potential conflicts of interest (No. 5) and fee transparency (No. 8).