Financial advisers report experiencing trust issues in their business, both from consumers still distrustful after the Hayne royal commission and in their own staff, amid multiple ASIC adviser bannings.
For two years, the Hayne royal commission caused trust levels of advisers to fall as it flagged breaches and misconduct such as fees for no service, conflicts of interest and an insufficient focus on conduct risk.
This led trust levels to fall to less than 40 per cent in the third quarter of 2018 compared to highs of 60 per cent pre-royal commission, according to research by CoreData.
Several advisers described to Money Management how they felt “shamed”, “lonely” and “saw their confidence dented” by the negative press and commentary surrounding the industry at the time.
Speaking on a Novigi webinar this month, senior partner Michael Quinn said the stigma still hangs over the industry in some ways.
“Financial advisers just want trust back, they want that chapter of the Hayne royal commission over and done with. They want to be recognised as someone who has survived that episode and who is here to do a good job.”
For clients who may be receiving advice for the first time, the adviser may feel they have to demonstrate their worth from the very start of the process. Clients may also feel vulnerable, reluctant to share information, lack understanding of the advice process or in a power imbalance.
Andrew Clucas, financial adviser at McGregor Wealth Management, said these negative expectations from consumers can put pressure on the adviser.
“It’s a really big responsibility being a financial planner and it can be a big step for people to trust you with their finances. In that sense, it’s a really important role and you need to do well to honour the people that trust you because that can have a big impact.”
Research by Ensombl said trust at the start of the advice relationship relies on credentials, past performance, trusted referrals and testimonials.
“The fact that trust takes time to build can create challenges at the beginning of a client-adviser relationship because the need for trust is high, but there has been little time to develop that trust,” the firm said in a report.
“Over time, trust becomes more relational, as a result of repeated and reciprocated interactions. When trust is high, investor satisfaction in the advisory relationship tends to come from personal attention rather than from actual financial returns.”
Pleasingly, there are signs consumer trust levels are improving now with 2024 CoreData research finding financial advisers rated 5.2 out of 10 on the trust scale, placing them ahead of superannuation fund executives and bank executives, but below accountants.
Trust with staff
It is not only consumers who are hesitant after the commission, advisers report being cautious about hiring new advisers of their own as well.
Earlier this week, Money Management wrote how there have been 11 ASIC bannings related to financial advice since the start of the 2023–24 financial year. Meanwhile, multiple advisers have also been sentenced for fraud offences.
For those licensees, this can lead to heavy financial penalties, reputational damage, loss of client trust and additional time spent resolving the matter.
With all this in mind, it is crucial to hire a new member of staff that they believe can be trusted.
Lana Clark, consultant at Elixir Consulting, said: “Many times, advisers will come to us saying, ‘I just can’t trust people’. Ask yourself the question about why you can’t trust them. Giving people autonomy leads them to be able to make decisions for themselves. That allows you to take a step back knowing you can trust the team to do the job effectively.”
This also applies when a firm is making an acquisition of another practice to ensure there are no legacy matters which might have been missed in the audit process. Necessary due diligence can include compliance audits, regulatory correspondence, proof of professional indemnity insurance, recurring revenue figures and customer relationship management (CRM) systems.
A complex due diligence report required by Radar Results when buying a practice, for example, would cover structure, licensing, compliance, agreements, litigation, technology and intellectual property, among 18 different sections.
There have been at least 10 AFSL cancellations since the start of 2024, according to ASIC, with several relating to failure to maintain financial records, so it is important to ensure due diligence is done correctly and thoroughly.
Future steps
In the future, Quinn added that advisers should flag the benefits of receiving advice with consumers including improved financial wellbeing, improved financial confidence, ability to meet financial goals and greater financial literacy.
“If I was a financial adviser, I would want to promote that people who see an adviser are more informed because they have been able to receive a level of education and have actioned on that education,” he said.
Ensombl recommended advisers could build this trust through putting clients at ease, showing you want to help, talking their language with minimal jargon, tackling their concerns, and demonstrating trustworthy behaviour.
When it comes to running their business, a global 2024 wealth management report from EY recommended advisers put in the time to gain clients’ trust.
“Creating value from advice depends on high upfront trust, time commitments by clients and relationship managers, and appropriate front-office capabilities. It requires them to work within integrated business models that empower them to strengthen client trust and relationship value.
“The key to building trust and engagement among affluent clients is to give them the support and tools they need to make better decisions – building and tracking a holistic plan towards key personal objectives.”
Interesting. Being a bit sceptical I can’t help wondering how much of this is a rationalisation of people being reluctant to pay fees up front in a difficult economic environment. If markets were rising and there were fewer concerns about the economy in the media and more broadly would there be more trust? While serious, I don’t think advisers misdeeds get that much exposure beyond specialist media. Happy to be corrected, as always.