Someone said that the trust of the innocent is the liar’s most powerful tool. In this issue, John Kador takes a look at the imminent rise of online advisor reviews, for good and ill. No company has cracked this particular business yet, though recent industry history is littered with failed attempts to build “online communities” out of advisors and prospective clients. The odd (and sometimes revealing) review of a financial advisor can pop up on Yelp or Google, but they are rare. Do a search for “financial advisor” in your area on your Yelp app and see what you find; it may surprise you.
Trust is the vital element in financial services—there is no other single factor that breathes as much life into the whole system. And we hear a lot about how investors don’t have it; they find the language of the business alienating and a sales pitch always lurking under the surface.
So it seems like a place online where clients can praise, or bash, their financial advisor would be a useful and welcome tool for both sides. Advisors with honest intent would welcome the exposure; clients would find an honest recommendation by a community of peers.
And yet I’m a bit skeptical. It may be that despite what they say on surveys, investor trust is, in fact, too easily given. In their recent book DIY Financial Advisor: A Simple Solution to Build and Protect Your Wealth by Wesley Gray, Jack Vogel and David Foulke, the authors point to recent academic research on “how trust is related to the assessment of advisor performance,” and finds that “many individuals’ evaluations of performance metrics are entirely unrelated to the quality of advice given.” In other words, clients may trust their advisors, but not for the right reasons. In the research, clients show “trust preferences” for younger advisors, and those with “certifications,” regardless of where they came from. They are also loyal to a fault. The longer they are with an advisor, the less they are able to correctly judge the quality of advice. If an advisor gave “good” advice on easy topics early in the relationship, the researchers found, the client far more trusted the “bad advice” given later on more complicated questions.
Advisors of good and honest intent would like to have the ability to showcase their clients’ praise, and they may get their wish, as Kador details in his article. But it does not necessarily mean clients will be better served.