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Financial Planning > Trusts and Estates > Trust Planning

What doctors and families have that advisors don’t

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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).

“If you work under an ethical code, there should be no problem providing all these rights,” says Stammers, who says these ethical expectations flow from the investment process inherent in his own CFA Institute’s charter.

So how does an advisor, whether or not he or she is one of the 120,000 CFA charter holders worldwide, break down the barriers to trust amidst a public that has duly noted the Madoff affair, the LIBOR scandal and the Wall Street firms that sold clients mortgaged-backed securities and then shorted them, making money on both sides of the trade?

“That stuff gets into people’s heads and they remember it,” comments Stammers, who advises advisors on a two-step trust-building process:

“First you build credibility, then you demonstrate integrity. You build credibility with past experience, with credentials like the CFA charter. As people do more and more due diligence, they’ll start looking for people who have these characteristics.”

“But then you articulate the ethical framework you work under,” he continues, specifying that by unambiguously explaining how you get paid and by clarifying the potential for conflicts of interest and how you seek to avoid them, you are demonstrating your integrity.

For advisors already convinced of their ethics or bored with the topic, Stammers offers a key insight as to why they should make ethics a primary daily focus, and why the medical profession is a relevant comparison to their own work.

It comes down to the role advisors believe there are providing in investor education.

“Investor education is a misnomer,” the CFA Institute’s director of investor education says. “It’s really about behavior change: How do you provide investors with the principles and best practices so that they can change their behavior to start doing correct things—by making better decisions and avoiding common mistakes that often plague investors.”

Investors will summon the courage to make these difficult changes when they can repose as much trust in their financial advisor as they have in their doctor.

And given the poor public image of the financial services industry today, the onus is on individual financial advisors to pave a path of trust that enables positive investor outcomes, Stammers argues.


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