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financial advisor building trust through transparency

With advisors increasingly being held to higher standards, it is imperative for them to be transparent in order to build trust with their clients. In fact, regulators in the financial services industry continue to stress the importance of greater transparency in planning relationships.

It is therefore imperative that advisors always strive to be fully transparent with their clients. Failure to do so can lead to a loss of trust, as well put them off-side with regulatory guidance which could result in enforcement actions, including fines and suspension or termination of licenses.  

According to the most recent annual report from the OSC’s Compliance and Registrant Regulation (CRR) branch, the regulator took 93 compliance actions — including issuing warnings, imposing registration conditions and levying suspensions for the 12-month period ending march 2020.

To be transparent, advisors must be open, honest, and straightforward in their interactions with clients.  At the same time, clients also need to be transparent with their advisors so that they can provide the best advice possible in the quest to meet their expectations.

Here are six ways to build trust by being transparent.

1. Provide Full Disclosure about Fees

A recent survey by the CFA Institute found that being fully transparent about fees and costs is the most important factor in creating trusted relationships. In fact, clients never like to be caught by surprise about fees or costs they do not anticipate. Therefore, advisors should never attempt to mask fees and costs. This can result in an instant loss of trust.  It all comes down to full disclosure.

2. Explain Product Features and Risks

Advisors should fully disclose the features of the products they recommend, without withholding information about any associated risks.  Such information is necessary to help clients make relevant decisions to invest. Recommending products that are in the interest of the advisor, instead of clients, can lead to unintended consequences.

For instance, if a client invests in a recommended product that does not perform according to their expectations, they can lose trust in the advisor for failing to identify potential risks or pitfalls. It is the advisor’s responsibility to ensure that products are suitable for their clients’ needs.   

3. Disclose all Conflicts

Advisors have a fiduciary duty to explain any conflicts of interest they might have when dealing with clients. When recommending a product, for instance, advisors might receive a commission from a company whose products they are selling.

This fact should be disclosed to clients so that they get the opportunity to decide whether the advisor is influenced by the commission to make the sale and whether there are alternative products which might be better suited to their needs for which the advisor does not get paid.

The failure to disclose all material conflicts is not only a regulatory infraction but can lead to a loss of trust if the client finds out that their advisor was not transparent. Regulators expect that disclosure of conflicts must have a level of specificity to help inform clients’ decisions when evaluating their relationship with them.

4. Keep Clients Engaged Online

Keeping clients engaged can go a far way in maintaining their trust. A good way to do so is through online portals which provide clients with access to their investments in real time.  These portals can also be used to share news, provide education and advice, and for on-going communication.

Knowing that they have access to their money and information from their advisor on a real time basis can enhance clients’ trust in their advisors.

It is also recommended that advisors share notes from client interactions, including documents and updates through secure online portals. This will ensure that both advisors and clients are on the same page with respect to all interactions, thereby avoiding and future disputes.

5. Manage Expectations

Advisors should ensure that clients know what they can expect from them. They should define what they plan to deliver and get clients’ buy in to avoid any misunderstanding. This will not only improve trust but will also facilitate transparency.

Most important, advisors should always strive to meet the expectations of their clients by being proactive rather than reactive.  Implementing a client feedback mechanism is a good way to gauge and manage client expectations.

advisor-client expectation management

6. Demonstrate Security

Advisors must ensure that the personal information of clients is always secure by maintaining appropriate security protocols. By being transparent with clients about the safeguards they have in place to protect their information and maintain their privacy, clients would trust them to share their personal information.

Explore BlueMind to see how it helps you in being transparent to your client.

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