In the intricate world of financial services, trust is the bedrock upon which relationships are built, decisions are made, and success is achieved. But what exactly constitutes trust? How can you quantify trustworthiness when seeking help with your financial plan?

Enter the Trust Equation, a powerful model that dissects trust into four essential components: Credibility, Reliability, Intimacy, and Self-Orientation.[i] Let’s explore each of these facets and understand how they shape trustworthiness when choosing to engage a financial adviser.

 

1.Credibility: The Words We Speak

Credibility hinges on verbal expressions. When someone says, “I can trust what she says about intellectual property; she’s very credible on the subject,” they’re referring to credibility.

There’s something to the saying, “Put your money where your mouth is” – or in this case, do you find someone’s words credible enough to stake money on it?

This is where qualifications, a long history of best practice, and a commitment to going above and beyond regulatory requirements can also speak volumes.

It’s important to remember that while past and present qualifications are good indicators of expertise, past performance is not a good indicator of future returns. While it may be tempting to trust someone offering a ‘guaranteed returns’ offer, you’re better off going with the tried, true and ultimately boring path towards long-term success. So if someone is offering you a get-rich-quick scheme… it’s probably not credible.

 

2.Reliability: Actions Speak Louder

Reliability centres on actions. When we say, “If he promises to deliver the product tomorrow, I trust him because he’s dependable,” we’re emphasising reliability.

When it comes to investing your hard-earned money, there is, inevitably, a certain amount of volatility or risk that you must accept. Markets go up and down, and they do so independently of man or machine interference (barring a few outlier events which quickly corrected, like the economic shut down at the start of the 2020 pandemic).

What is reliable about financial markets is that they will always come back to the mean. What goes up must come down, and what goes down will eventually rise to new heights. You can typically draw a line through the middle of these peaks and troughs and see a gradual upward trend over time.

A fiduciary knows this and will plan accordingly so you can reap the benefits later. What is reliable about fiduciaries is that any actions they take will be in your best interest, and within the scope of what was agreed upon in a Service Agreement.

 

3.Intimacy: The Safety of Entrusting

Intimacy relates to the safety and security we feel when entrusting someone. Imagine saying, “I can trust her with that confidential information; she’s never violated my trust before.”

Trusting someone with information is one thing; trusting them with the farm is another. Allowing a fiduciary to handle your life’s savings can be extremely daunting; as a society, we barely even talk about our personal financial situation, let alone trust anyone else with it.

This is where engaging a fiduciary can offer peace of mind. There are layers of safety and security in the financial advisory profession. From strict conduct regulations set out by the Financial Markets Authority – Te Mana Tatai Hokohoko (FMA), to legal protections for clients, to voluntary additional auditing through the Centre for Fiduciary Excellence (CEFEX); there are plenty of ways you are protected within this process.

 

4.Self-Orientation: Where Our Focus Lies

Self-orientation reflects our focus. When we say, “I don’t trust him on this deal; he’s too concerned about his gains,” we’re highlighting self-orientation.

This is where you might get a funny feeling about the wheelers and dealers, or people you know gain a commission from the sale of a financial product. The hard sell is usually a good indicator of this. ‘Just for you’ or ‘just for today’ are usually code for ‘get up and run’, for savvy savers and investors alike.

You’re in this for you. As such, you don’t want the person handling your investments to be getting a cut of the pie when they decide where to place your money.

What you need is someone unbiased who invests using evidence-based, scientific techniques to create a globally diversified portfolio. Someone who will put you and your goals first, to help ease the burden of stressing over your financial future so you can focus on what’s important right now.

 

There is a great quote I saw from author and business speaker Richard Fagerlin: “Trust isn’t what we do; it is what results from what we do.”

Engaging a local fiduciary is an exercise in trust, but you can (and should) have a full, transparent view over practices, history, and relevant qualifications and accreditations like CEFEX. There is credibility, reliability, and intimacy in being able to chat face to face with someone to discover your options or seek a second opinion.

At the end of the day, your financial journey is about you and those that matter to you most future. A trustworthy financial adviser will be all about that too.

 

by Bruce Jenks (Financial Adviser at Stewart Group)

·        Bruce Jenks is a Financial Adviser at Stewart Group, a Hawke's Bay-based CEFEX & BCorp certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions. Article no. 348.

·        The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz

 

[i] 1 trustedadvisor.com