How financial advisers can operate in a world without trust

Fiduciary — ADJECTIVE. 1. involving trust, especially with regard to the relationship between a trustee and a beneficiary: The company has a fiduciary duty to shareholders. NOUN. 2. a trustee. ORIGIN: late 16th century from the Latin fiduciaries, from fiducia ‘trust,’ from fidere ‘to trust.’
Courtesy of the Oxford Dictionary of English, here’s this week’s brief lesson in Latin, starting with a word that should be well-worn and familiar to advisers: fiduciary.
Why? Well, knowing a few fancy foreign phrases comes in handy when trying to impress your friends at the next industry gathering, such as the InvestmentNews Community Leadership Awards dinner in New York last week.
Second, just look around. Trust is in short supply these days. No one needs to tell that to advisers or almost anyone in the financial industry.

BROKERS GONE BAD

Just review the daily and weekly stories from InvestmentNews on brokers gone bad, or the latest headlines coming out of Wall Street. Deutsche Bank shares fell last week to a new low over a potential $14 billion settlement with the U.S. Department of Justice stemming from risky mortgage-backed bonds it sold that led to the 2008 global financial crash.
Or look at Wells Fargo and its customers, who were fleeced by the creation of more than 2 million phony accounts, thanks to the shady practices of 5,300 Wells Fargo employees who were ultimately fired for opening those ghost accounts to hit unrealistic sales targets. The sheer size and scope of that scandal is shocking, and it’s still unfolding.

(Related read: Wells Fargo mulls development of immediate variable annuity)

Fide nemini. “Trust no one.” If they pay close enough attention, advisers will see that the public increasingly doesn’t trust anyone anymore. Institutions in the banking sector are just the tip of the iceberg.
From our nation’s police departments to politicians, and, yes, even the mainstream press, no one is spared. A recent Gallup survey found that only 27% of the public would rate the honesty and ethical standards of journalists as high or very high, with bankers coming in slightly behind at 25%. Brokers garnered a mere 13%. And we all know how often the public lumps the financial services industry together in their impressions of trust.

(Related read: Frequently asked questions about the DOL fiduciary rule)

What group polled worse? You guessed it: Congress members, at 8%.
It’s hardly a surprise that Congress routinely scores near the bottom regarding the issue of public trust. Presidential candidates such as Hillary Clinton and Donald Trump score equally low on the “trust factor” as leaders from the political class. For better or worse, this is the existing environment in which advisers are trying to build a business and win clients’ trust.

EXPERTS CAN SHINE

Experto crede. “Trust the expert.” Needless to say, it won’t be an easy road, but in an odd way this may be a tremendous environment in which to “trust the expert,” as the Latin saying goes. For advisers who can demonstrate their knowledge and expertise in the marketplace, this may be the most opportune moment to stand out and shine.
Similarly, the current culture of mistrust represents a challenge for industry watchdogs and leaders such as Mary Jo White, chairwoman of the Securities and Exchange Commission, and the new leadership at the Financial Industry Regulatory Authority Inc., CEO Robert W. Cook and Chairman John J. Brennan.

(Related read: Finra elects Vanguard’s John Brennan chairman to replace Richard Ketchum)

The SEC and Finra should remain vigilant against abuses by rogue brokers and others in the financial services industry and continue to ensure that the greatest protections are in place for the investing public — particularly those who are most vulnerable.
Only then can the advice industry — and the various public figures and financial institutions that have fallen into such disarray and dysfunction — begin to restore the public’s general trust in those institutions.