The wealth management industry has a trust problem — and that’s not even the bad news.
Consumers’ lack of trust in wealth management providers is well documented. Nearly two-thirds of those surveyed in a 2016 American Association of Individual Investors poll said they didn’t trust financial advisors. More recently, the 2019 Edelman Trust Barometer found that Financial Services was the least trusted industry in the eyes of consumers.
The worse news, however, is that the industry’s preferred instrument for narrowing this trust gap might actually be widening it.
That instrument is consumer disclosure, and it has long been the wealth management industry’s go-to strategy for cultivating trust, by trying to provide transparency in fees, conflicts of interest and other thorny topics.
What Your Peers Are Reading
However, as currently practiced in financial services (and most businesses), consumer disclosure is far from the elixir the industry purports it to be. If anything, it is the antithesis of transparency, for two key reasons.
Disclosure Downside #1: Readership
First, hardly anyone reads disclosures. Admit it — as a consumer, when was the last time you read one?
Amazon.com has underscored this point in a most amusing fashion via the Terms of Service it provides to software developers who use its Amazon Web Services (AWS) platform. In the excerpt below, Amazon explains that customers can’t use AWS software to build “life-critical or safety-critical systems.”
However, as the highlighted section shows, the agreement lifts this usage restriction if the U.S. Centers For Disease Control declare the presence of a “widespread viral infection transmitted by bites or contact with bodily fluids that causes human corpses to reanimate and seek to consume living human flesh … and is likely to result in the fall of organized civilization.”
Yes, you read that right … Amazon is disclosing a contingency for the Zombie Apocalypse. If that catastrophe befalls us, then you’re allowed to use AWS software for whatever you need to survive.
The fact that the flesh-eating undead can be referenced in an official document like this, without hardly anyone noticing, speaks to a larger and more serious issue: Disclosure documents are an awful way to communicate important information to your customer.
Companies bury important details in opaque disclosures that they count on no one reading. Examples abound: coverage exclusions for your insurance, service fees for your bank account, cancellation fees for your gym membership, price hikes for your cable TV package, and — of course — conflicts of interest for your financial advisor.
Organizations hide behind these disclosure documents and point to them as evidence that anything important is indeed revealed to the customer. The reality, however, is that many companies (and sometimes entire industries) use disclosures to convey information that they don’t really want anyone to see.