Recession Impacting Trust in Advisors


 The current recessionary environment has been very challenging for many of us, and it has had a significant impact on many investor’s financial actions. Investors look to their financial advisor to help them weather this financial storm. During challenging times investors are also likely to evaluate their relationship with their advisor, and will either increase their level of trust in their advisor, or they will lose trust in their advisor. When trust is lost many investors may consider changing their advisor.

Trust is the foundation of any successful investor/advisor relationship. When an investor has trust in their advisor, they can be confident that the advisor is working in their best interest and is providing reliable advice. This trust allows both the investor and advisor to have open and honest communication about the investor’s financial goals and objectives, and any potential risks associated with the investments. This can help the investor feel more secure in their investment decisions and more confident that their advisor is looking out for their best interests.

If you are looking to replace your primary financial advisor because of the economic downturn, you should know that you are not alone. Recent Spectrem Group research shows that 15 percent of investors have seen a decrease in their level of trust in their advisor since the start of the recession. Seventeen percent of investors are neutral to how they feel regarding the trust they have in their advisor.

Not surprisingly, 10 percent of wealthy investors have indicated that they are looking to replace their financial advisor as a result of the recession. Once trust is lost it is nearly impossible to regain that trust in regards to an advisor/client relationship. This loss of trust can be caused by a variety of factors, most often actions that the advisor has taken, or didn’t take, during this recession.

The most common action that causes investors to lose trust is when their advisor contacts them less frequently. Talking about challenging things, like investment losses or the declining economy, is something that many advisors avoid, but that avoidance leads to not talking to clients as often as they should. This avoidance ultimately leads to the investor losing their trust and deciding to move their assets to another advisor.

The challenging part is those tough conversations during a recession, those where advisors are discussing investment returns that may be less than ideal, can also be a common reason why investors would change financial advisors. Eleven percent of investors indicate that they lose trust in their advisor when their assets have experienced a loss of more than 10 percent of their value. An investment loss of 20 percent or more is a cause of diminished trust for nine percent of investors.

How this recession is impacting advisor/client relationships will continue to evolve over the next several months and years. Investors should clearly communicate with their advisor what expectations they have regarding communication during the recession, or reach out to their advisor themselves.