Is the adviser community facing something of a crisis of trust? Individuals rank trust as by far the most important consideration when choosing a financial adviser and yet as a whole the advice industry is viewed as barely more trustworthy than insurance providers or investment bankers. These results emerged from an April survey* of consumers who use Morningstar.co.uk to research and monitor their investments.
Over half of the 1,000 participants said trust was their primary consideration, followed by the adviser’s reputation and then their cost. Past investment returns came in fourth, while considerations such as the adviser’s tech savviness or locality were of little importance to most consumers.
The crisis element of the story comes in when asking the same individuals how they view various financial services industries. The financial news and information industry is the only one to enjoy a good or very good level of trust from at least half the consumer questioned.
Investment bankers fare the worst, which will come as little surprise to most following six years of bad-mouthing from the national press in relation to a culture of greed that underpinned the financial crisis. But advisers—that community whose raison d’etre is to help consumers manage their money and plan for financial security—have also failed to secure the trust of the nation.
Only one in five ranks their trust of independent financial advisers as ‘good’ or ‘very good’. The only industries to fare worse were the investment and retail banks, and the pension and insurance providers. Beating IFAs are financial regulators, broker-dealers and fund providers.
It seems rational to expect that the financial crisis and close inspection of financial services’ cultures over recent years have damaged the reputations of all related professions. Indeed, stories of malpractice among members of the advice industry are not unknown. But if this is the industry that is tasked with helping consumers achieve their financial goals, something must change to ensure that their expertise is trusted and, thus, in demand.
The Government is gradually and deliberately making investors of us all via auto-enrolment and reduced pension provision. They can lead us to water, they can even make most of us drink (unless we opt out) but that in no way guarantees that we quench our thirst. A good relationship with a financial adviser can make all the difference to ensuring peace of mind in the endeavour of securing financial independence.
Interestingly, lack of trust isn’t the main reason why 54% of those surveyed said they weren’t willing to pay for professional financial advice. Wanting to be the one in control of their own finances was the number one reason (29%) with the second most popular answer being that consumers think they can do a better job on their own (22%). A further 20% listed lack of trust as the barrier, while only 5% said they couldn’t afford it.
So let’s review our findings. Consumers put trust at the top of the list when considering employing an adviser and this is juxtaposed against a general lack of trust of the advice industry as a whole, but this isn’t the main hindrance.
Today’s personal investors want to be at the helm; taking responsibility is not only admirable but a necessary concern when it comes to one’s finances. But that doesn’t negate the need for a some professional hand-holding, not least when it means being able to sleep at night, safe in the comfort that someone’s seeing the big picture and they’ve got your back.
*1,000 registered users of Morningstar.co.uk took part in the survey in April 2014; 856 were private investors and 70% of these have personal investment portfolios in excess of £150,000.
