Home

I'm looking for:

We're using cookies, but you can turn them off in your browser settings. Otherwise, you are agreeing to our use of cookies. Learn more in our Privacy Policy

How wealth managers are building client trust in the digital age

The image shows three people in a professional setting, likely a meeting or counseling session. The two individuals on the left, a woman with reddish-brown hair and a man with dark skin, appear to be in discussion, while the man on the right, who is older and has gray hair, is sitting with them and using a tablet or laptop.
Published 25 Nov 2024

People overwhelmingly trust human advisors over machines when deciding how to invest their assets. But humans empowered by technology may be the most trustworthy of all.

What makes clients loyal to wealth managers? With the “great wealth transfer” expected to result in USD72.6 trillion in assets passing down from baby boomers to millennials by 2045, and studies suggesting that 80% of millennial heirs will seek out new financial advisors after inheriting their parents’ wealth, the question is more important than ever.

It largely comes down to trust, according to Danielle Labotka, a behavioral scientist at Morningstar Research Services.

In Morningstar’s recent report on what motivates clients to stay with their financial advisors, by far the most common reason investors gave for keeping their advisor was that they didn’t feel comfortable enough, interested enough, or knowledgeable enough to do the work of managing their finances themselves (see Figure 1).

Clients want to hand these issues off to someone they feel comfortable with — and that requires trust, said Labotka.

0.40 0.37 0.22 0.16 0.12 0.09 Discomfort handling finances Quality of advice Behavioral coaching Returns Specific financial needs or goals 0.35 0.30 0.25 0.20 0.15 0.10 0.05 0.00 ‘It's easier. It's the reason why they do what they do and I am glad to give up responsibility...’ ‘Peace of mind’. ‘Money makes me nervous.’ ‘The advisor has helped me consider a variety of things- -taxes when to take RMD how to prepare in case I need extended health care and so on’. ‘He’s given good advice to me over the years...’ ‘I need someone to guide me every once in a while.’ ‘He makes me money.’ ‘Make transactions as needed.’ Figure 1: Most Common Reasons for Keeping a Financial Advisor Source: Morningstar Research.

This finding was also reflected in the 2022 CFA Institute Investor Trust Study, which revealed that retail investors ranked finding an advisor who could be trusted to act in their best interest as the most important attribute when deciding to hire them, ahead of the advisor’s ability to achieve high returns (see Figure 2).

Figure 2: Trust Trumps Returns When Choosing to Hire an Advisor Most important attribute when making a decision to hire a financial advisor 2020 2022 Trusted to act in my best interest Ability to achieve high returns Commitment to ethical conduct Recommended by someone I trust Compliance with industry best practices Amount/structure of fees 33% 34% 17% 21% 15% 15% 18% 15% 8% 8% 9% 7% Source: 2022 CFA Institute Investor Trust Study.

Transparency instils trust

The best way to gain and maintain trust, according to Noah Damsky, Founder of Marina Wealth Advisors in Los Angeles, California, is to be upfront with prospective clients and manage their expectations. “We always talk about investment philosophy and how we invest before we even sign on a client,” he said. 

“I tell them, we don’t play the casino, we’re not a hedge fund, we’re not trying to swing for the fences and hit huge home runs,” Damsky added. “We’re not going to turn somebody who is not wealthy into a wealthy person overnight – that’s just not what we do. This is about patience, and it’s about preserving purchasing power, growing wealth over time.”

Trust is also crucial to convincing clients to follow their wealth managers’ advice through thick and thin. “Overall, that’s probably the most important thing in a successful advisor-client relationship,” said Victoria Nabarro, Founder of Veda Wealth in London, UK. “If they trust you, they will not make panic decisions without giving you a call.”

Communication bolsters trust

Trust and communication have always been the foundation of fruitful and lasting relationships, and the two reinforce each other: more frequent communication tends to result in greater trust in the plans that advisors have developed for clients.

With the advance of technology, trust has arguably become even more core to the wealth manager’s proposition. In the past, the main function of wealth managers was to provide clients with access to investment products. But as technology platforms increasingly enable people to purchase a growing range of products without need for an intermediary, “the role of wealth managers has shifted to include those human services that technology just can’t supplant,” said Labotka.

 “It’s more important than ever for advisors to get to know their clients as humans, establish trust in the advice that they give them, and help them make good decisions,” said Labotka.

When it comes to investment recommendations, it seems people overwhelmingly place their trust in humans over machines (see Figure 3). But a human empowered by technology is arguably even more trustworthy. 

Figure 3: Retail Investors Trust Human Advisors Over Robots Which is the more trusted source of recommendations Total retail 74% 20% 6% Canada 84% 14% 2% United States 82% 14% 4% France 82% 13% 5% United Kingdom 81% 13% 5% Australia 81% 16% 3% Mexico 80% 9% 11% United Arab Emirates 75% 19% 6% Brazil 73% 19% 8% Germany 73% 21% 6% India 70% 28% 2% Hong Kong SAR 58% 31% 11% Singapore 53% 36% 11% Japan 52% 34% 14% China 34% 46% 20% South Africa 58% 39% 3% A human adviser Both are equal A robo-adviser Source: 2022 CFA Institute Investor Trust Study.

In a wide-ranging survey by Avaloq, a provider of technology solutions for the financial industry, the main considerations deemed very or extremely important by investors in establishing trust in their advisor were whether the advisor managed the investment risk of their portfolio and considered their risk appetite; communicated clearly; responded quickly; provided investment analytics and visualizations of their portfolio; and showed them the impacts of decisions on their portfolio live in meetings (see Figure 4). 

The last two factors, of course, are heavily dependent on whether the advisor uses relevant modelling and visualization software. An advisor’s ability to deliver on the other factors, too, can be enhanced by the use of technology to streamline administrative tasks and personalize service  to clients.

Figure 4: What Wealth Managers Can Do to Gain Client Trust Q. How important is each of these elements for establishing trust in your adviser? Sample size = 1,505 2% 1% 2% 2% 6% 3% 1% 3% 4% 4% 27% 50% 17% 15% 38% 11% 24% 24% 26% 23% 14% 4% 18% 16% 14% 11% 8% 4% 50% 27% 40% 39% 45% 45% 42% 45% 31% 15% 31% 16% 16% 14% 18% 24% 33% Responds quickly Communicates clearly Proactively shares relevant news articles Proactively shares new product offerings that would suit my needs Remembers my personal information Is available on multiple channels (email, in person, phone, instant messaging apps, web/mobile banking) Shows me the impacts of decisions on my portfolio live in our meetings Provides investment analytics and visualizations of my portfolio Professionally manages the investment risk of my portfolio and considers my risk appetite Not at all important Not so important Somewhat important Very important Extremely important Source: Avaloq wealth insights 2024.

David Hurd, EY Canada Wealth Management Leader, said that technology can help win clients’ trust by providing them with a real-time view of their assets and their progress towards achieving their goals – and noted that trust is foundational.

“In addition to trust being established during critical moments like onboarding, it is more and more going to be earned in increments over time,” said Hurd. “There are going to be table stakes – things that clients are going to expect from wealth managers in order to get to that baseline of trust.”

If an advisor recommends four or five things a client should do to achieve a certain goal, for instance, the client will expect to see clear progress on those measures when they next log in to their portal.

“Then that can carry forward into the next discussion between the client and the advisor,” said Hurd.

It’s a simple example of the way in which technology will increasingly help advisors win clients’ trust by not only providing greater transparency in real time, but also by enabling more meaningful conversations with them.

Want to know more? Explore related articles

How tech lets wealth managers focus on client relationships
Personalization vs privacy in data-driven wealth management
How tech supports financial literacy and better money management
How TikTok is transforming financial advice

You may also be interested in

Want to learn more about Data science?

With the advent of data science, the investment industry is changing rapidly. Investment firms are facing new challenges and these changes will have implications for your career.

Learn more
Abstract data science illustration