Morningstar Magazine - February/March 2014 - (Page 12)

Behavior Gap Fixing the Trust Deficit By Carl Richards For years now, I've discussed the need for people to work with financial professionals they trust. It turns out this recommendation may be a bit difficult to follow. A Gallup poll at the end of 2013 revealed that Americans as a whole trust each other as individuals less. Only one third of us believe that other people can be trusted. For an industry that needs trust to function, we face an uphill battle. As I highlighted in my last column, the 2013 Edelman Trust Barometer showed that people only trust our industry to do what's right half the time. That's a big deficit to overcome. However, I think the most important step we can take is to make sure our actions match our words. If we say we can be trusted, we need to show people why they can. 1. Focus on transparency. Many firms and individuals recoil at the thought of transparency. I don't think you need to expose all the nooks and crannies of how you do business to demonstrate transparency. Transparency matters most when it comes to the relationship between us and clients. Make it clear how you're paid. Make it clear when and how a client will be charged. Make it clear what services you include in your fee and what services are considered extra. Make it clear what conflicts of interest exist. 2. Admit to not knowing all the answers. We know it's impossible to know everything. Besides not being able to predict the future, we also only know so much outside our area of expertise. But we hesitate to admit we don't know, and as a result, we create a false sense of precision that often leads to disappointment 12 Morningstar February/March 2014 for our clients. So, instead of pretending to know the answer to a question when you're not sure, try saying, "I don't know, but I'll find out." It's a refreshing answer for clients to hear as opposed to giving an incorrect answer and then needing to go back with a correct one. what will be different. Part of your changes may involve no longer providing a service to some clients. If that situation arises, create a plan to help those clients make a smooth transition, even if that means helping them find someone else who can work with them. 3. Admit to mistakes. I suspect one of the reasons people dislike the financial industry so much is we don't admit to our mistakes. If you make a mistake, think about how you can accept accountability and what you will do to prevent it from happening again. Ultimately, trust comes down to giving people reasons to place their trust in you. It's not about taglines and marketing campaigns, but about showing people you are more than just words. Make your actions trustworthy and client trust will follow. If we want a sustainable industry, we need to become an industry that inspires trust more than 50% of the time. K 4. Avoid radical changes. Few things will make people question you more than a radical change. If you need to make a change, don't spring it on people. Introduce the idea that a change is coming and clearly outline Carl Richards, CFP, is director of investor education for the BAM Alliance and author of The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money.

Table of Contents for the Digital Edition of Morningstar Magazine - February/March 2014

Morningstar Magazine - February/March 2014
Contents
Contributors
Letter From the Editor
Preparing for the Next 50 Years
Morningstar Managers of the Year
Fixing the Trust Deficit
Rethinking the Path to Retirement
Trends
Same Old, Same Old
Global Briefs
The Economic Implications of an Older World
Banking on Performance
Is the Affordable Care Act Healing Health Care’s Woes?70
Baxter Has a Positive Prognosis
Leading Fidelity’s Charge for RIAs
Our Favorite Mutual Funds
50 Most-Popular Equity ETFs
Undervalued Stocks With Wide Moats
Moving the Goal Post

Morningstar Magazine - February/March 2014