Von Aldo

Advisors to Fund Companies, Insurance Firms, Hedge Funds and Financial Firms: We Don't Trust You

On March 2 and March 21, we surveyed a cohort of our readership (289 financial advisors completed the survey, about a 2 percent response rate) about how they felt about the financial services industry. Guess what? Even financial advisors don't trust financial services firms. Amazing.

And remember: This report --- we call it The Financial Advisor Pulse Study --- was conducted a year into the market rally and well after the collapse of Bear Stearns and Lehman Brothers and everything else. It's also well before the news that the SEC is bringing fraud charges against the good people of Goldman Sachs. See also my post, My CDO Went Bad! Big Boy Did It!

Here was our question, “How trustworthy do you personally consider each type of firm to be?” The percentage who answered "extremely trust worthy" or "somewhat trustworthy" were quite low. For "diversified financial services firms," the response rate in the first quarter of 2010 was 35 percent. For asset management firms, 37 percent said extremely or somewhat trustworthy; for insurance companies the percentage dropped to 25 percent; for "boutique investment manager (traditional strategies)," it was just 19 percent; and for hedge funds, only 5 percent of our respondents thought they were turstworthy. See table below; as you can see, trust levels have not budged from the fourth quarter of 2008 --- in the proverbial heart of darkness, a time of great fear and loathing.

This is remarkable state of affairs really. "Trust in the industry, even by financial advisors, is in the toilet, which is frightening because this is saying that financial advisors may be selling products of or management services of companies they don't believe in," says Lisa A. Cohen, head of Momentum Partners, an industry consultant. "Here's the thing I don't get: How do they sleep at night? They are selling all this stuff." (Momentum Partners is in a joint venture with Registered Rep. magazine called, Rep ThinkTank, a consultancy aimed at helping distributors of financial products and services understand financial advisors.)

Advisor trust has not bounced back despite a market rally. Source: Rep ThinkTank

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