The financial services industry has evolved significantly over the past decade, shifting from a transaction-focused model to one centered on comprehensive advice and relationship-building. According to a recent Cerulli Associates study, financial advisors attribute more than half (56%) of their new clients to referrals, demonstrating that building trust through comprehensive planning directly impacts practice growth.
This article explores how understanding the three levels of trust can transform your client relationships and practice.
1. Understanding the three levels of trust
In any relationship-based business, trust is one of the most important currencies there is. Without trust your business will lose out on a major growth stream—referrals. To understand how trust operates, let’s go over the basic levels of trust we can build with our clients and audience. The framework below comes from Randy Conley, a trust practice leader, and illustrates how trust operates on three distinct levels:
- Deterrence-based trust: The most basic level where relationships are governed by rules, contracts, and policies. At this level, trust is essentially transactional and impersonal.
- Knowledge-based trust: This intermediate level develops when we have enough experience with someone to predict their behavior. In professional relationships, this involves believing someone has your best interests in mind, will follow through on commitments, and can be trusted in everyday dealings.
- Identity-based trust: The most intimate level based on a deep understanding of another’s hopes, dreams, goals, ambitions, fears, and doubts. This level involves increased transparency and vulnerability, characterized by loyalty, acceptance, and understanding.
Image source: Tanmay Vora. Click the image to view a larger version.
So how does this play out for financial advisors? Ultimately, it comes down to the services and value we deliver to clients. At the end of the day, can we deliver and drive high-value services for our clients to help them achieve their goals?
Pro tip: When advisors offer more holistic and comprehensive services, they develop a higher level of trust with their clients. In contrast, a more transactional advisor will gain a lower-level trust proportional to the value they offer.
2. How trust levels operate in financial advisory relationships
Let’s explore how these three trust levels manifest in advisor-client relationships:
- Deterrence-based trust example: A client relies on an investment-focused advisor solely because of contractual obligations and the advisor’s professional credentials. The relationship is primarily transactional, with limited personal connection. When markets decline, the client may blame the advisor and potentially look elsewhere.
- Knowledge-based trust example: Through regular interactions, a case-based advisor builds knowledge of the client’s financial behaviors and preferences, creating a predictable and reliable relationship. The client feels comfortable because the advisor understands their basic financial situation and risk tolerance, making quarterly adjustments as needed.
- Identity-based trust example: A comprehensive advisor builds a financial plan around the client’s deeply personal aspirations and concerns, not just numerical targets. When markets decline, the client understands how their portfolio connects to their life goals and is less likely to make emotional decisions or blame the advisor for short-term performance.
Pro tip: Approach client conversations by exploring values and personal milestones before discussing numbers. Create clear connections between financial strategies and the client’s personal narrative.
3. Understanding the impact of trust on your practice
Building deeper trust with clients yields tangible benefits:
- More valuable referrals: Clients who truly trust you are more likely to refer family, friends, and colleagues, attributing to the 56% of new clients that come from referrals.
- Resilience during market volatility: When clients trust your process rather than just performance numbers, they’re less likely to make emotional decisions during market downturns.
- Reduced fee sensitivity: Clients who perceive high value from your comprehensive approach are typically less focused on fee comparisons.
- Professional network expansion: Attorneys, CPAs, and other professionals are more likely to refer clients to advisors they trust to provide comprehensive care.
- Client benefits: Clients with trusting advisor relationships are more likely to meet their goals, make better decisions, and feel more secure about their future. It’s truly a win-win!
However, the real impact of this trust is best illustrated through the words of clients themselves:
As one client testimonial reveals: “I don’t know that I could have another financial advisor with a team that I trust as much as I trust this team.”
Another long-term client shares: “We have over 30 years of experience with Debbie Taylor and her firm. We trust and appreciate all of the big things and all of the little things her company has done for us. Money is always important but so is the trust and faith we have in her business and the confidence we have in her to help with life decision making.”
Pro tip: Investment performance will inevitably fluctuate. Leading with trust-building and comprehensive planning, things you can control, is significantly more advantageous for long-term practice success.
4. How to start building deeper trust
Building stronger trust with your clients may feel overwhelming at first, but it is easier to start slowly and integrate small changes throughout the year to start this process. Here are some starting points below:
- Assess your current trust level with each client using the three-level framework.
- Schedule deeper discovery meetings focused on clients’ values, not just their finances.
- Create communication touchpoints that go beyond performance reviews.
- Document clients’ personal goals and milestones alongside their financial targets.
- Develop collaborative relationships with other trusted professionals in your clients’ lives.
Investment performance will inevitably fluctuate. Leading with financial planning and relationship-building, things you can control, is so much more advantageous.
Pro tip: Connecting what you do from an investment standpoint to achievement of goals is the most important thing here. When your clients understand the bigger picture and understand you are part of achieving that, your business and value become much stronger and more resilient. Once your clients understand clearly what value you offer, the trust will be built, and referrals will follow.
Remember that building identity-based trust doesn’t happen overnight. It’s a process that requires intentional effort and a genuine commitment to serving your clients’ best interests. However, advisors who make this transition will find themselves with more stable, profitable practices that thrive even in challenging market conditions.
By implementing these strategies, you can begin building deeper trust with your clients today and enjoy the benefits of stronger relationships and more valuable referrals.