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Financial Planning > Charitable Giving

The Bright Side of Investor Distrust

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In the early 1990s, when I was at Worth magazine, I interviewed a number of the wealth managers at JP Morgan Private Bank. One of them told me that they’d recently gotten a call from a man who was very apologetic about bothering them, as he “probably wasn’t wealthy enough to meet their minimum. But he’d seen their magazine ad, and thought he’d call anyway.” He had just sold his business for $500 million.  As you might imagine, the good folks at JP Morgan were more than happy to help him out. 

As most advisors eventually come to realize, people have some pretty funny ideas about money. I came across a more recent example in a blog by advisor Phil Simonides of Tysons Corner, Virginia, posted Feb. 2 on “The Misperceptions That Cause People to Avoid Financial Advisers.”

You may notice the unusual use of the term “adviser” in that headline, made even more curious by Simonides’ bio, that lists him as affiliated with McAdam LLC in Philadelphia, which, as far as I can tell from its website, is a broker-dealer and an insurance agency. I can only conclude that the use of “adviser” is a typo by the WSJ.

Simonides’ story is based on an Oct. 2015 survey conducted by Harris Poll (on “behalf” of McAdam), of 2,009 Americans on their attitudes toward “professional financial planning.” Simonides called the results “striking,” which I suppose they are: that is, if you’ve never gone to a financial advisor (or “adviser”), or to any other kind of professional. But since Phil seems to be surprised, I suspect that many other advisors/advisers would be surprised by the survey results, too. Which is a shame, because advisors who aren’t aware that clients are nervous about seeing them are probably not taking any steps to raise their comfort levels.

The most “striking” results from the Harris/McAdam survey is that some 71% of respondents said that some “aspect of meeting with an adviser [sic] scared them.” Even considering people’s curious attitudes about money, you have to admit, that’s a pretty big number—well into the “most” category. To reach that total, their leading concerns were “costs” (49%), “trust” (47%), and “the inability of an adviser to help them with their financial situation” (41%).

In reaction to these numbers, Simonides wrote: “It troubles me that many potential clients decide not to hire a professional based on perceptions that aren’t grounded in reality…. …If [financial advisors] want the opportunity to grow our practices and, more important, to help more clients reach financial freedom, we must actively address and correct these misperceptions.”   

Misperceptions? Not grounded in reality? To my mind, these numbers suggest a rather stark—and encouraging—improvement in investors’ understanding of the financial services industry. Of those three leading concerns (costs, trust and the ability of the advisor), only the last one (ability to help) seems even the least bit misguided.

And given the widespread abuses in the areas of trust and costs, it seems reasonable that an advisor’s ability to help might truly be impaired, as well. The fact that virtually half the investors polled (49% and 47%) were concerned about advisor “trust” and investment “costs” suggests to me that despite the best efforts of the brokerage industry, financial consumers are finally getting the message about how the financial services industry really works. And, perhaps, if I put on my most optimistic hat, that industry claims such as “acting in investors’ best interests would be bad for investors” is beginning to ring hollow with investors whose best interests are at stake. 

Simonides goes on to recommend what “advisors” should do about these troubling investor perceptions: 

Some investors are anxious about giving out their financial data and may doubt whether an adviser can manage their money responsibly. I like to address this right away by showing our written confidentiality policy. If you are held to a fiduciary standard be sure to highlight this, helping prospects understand that you have taken a formal oath to act in their best interest.”

Perhaps I missed it, but I don’t remember “confidentiality” being near the top of investors’ concerns. However, doubts about “whether an advisor can manage their money responsibly” is a more troubling issue. Hard to argue with highlighting one’s fiduciary duty, “if you are held to” one. Unless, of course, an advisor is a “part-time fiduciary,”

How does one “highlight” that without giving the impression they are a “full-time” fiduciary? And what about advisors who don’t have a fiduciary duty? Stick with confidentiality?

Seems to me that if “full-time” fiduciary advisers start highlighting their “full-time” fiduciary duty more aggressively, investor perceptions about investment costs and advisor trust will become even more grounded in reality.


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