1) Why is financial services least trusted industry in the world?
The 2012 global Edelman Trust Barometer puts financial services at the bottom again --- even lower than in 2011.
A big factor is the conflict of interest between what's right for the client and what's best for the advisor's pocketbook. It's unlikely that good advisors would do something completely wrong for their clients. That leaves a large zone of ambiguity between right and wrong. You simply can't be certain if your advisor is doing what's best for you.
Since advisors aren't fiduciaries, they have no legal requirement to put your interests first. You are dealing with salespeople --- maybe salespeople with fancy titles, years of experience and nice offices --- but they're still salespeople. There's nothing wrong with selling. However, the key message is buyer beware.
The solution is to separate the advice giving from the implementation. The fee-only model is slowly coming to the investment world. Clients then know what they're paying and what they're getting.
2) How to spot someone you can you Trust
Over the years, I've seen that trust requires three elements: chemistry, credentials and congruence. Here's more detail.
Chemistry means you like the other person. Let's say it's an advisor. If you don't, move on. You usually have many reasonable substitutes. Some are bound to be better. It doesn't matter why the advisor makes you uneasy. Your hunch could easily be right. Since successful advisors tend to be likable, you can't decide based on your gut feeling alone.
Credentials measure whether the advisor can do the actual work. You might like them and they may mean well but if they can't deliver results, what use are they to you? Again, you'll find many advisors with a comparable level of experience. By definition, most advisors are close to average. Theire prices are often similar too. With a little checking, you could get a better advisor for the same price as an average one. That's good value for you.
You can't stop yet. Trust has another element.
Congruence makes the difference. Does the advisor do what they say? Not just today but on a regular basis. How can you tell? Look for clues of what they've done in the past. Look for signs of ongoing generosity to strangers. That's tough to fake for long. The easiest way to judge is via social media. What is the advisor sharing? When did they start? Are they consistent? Is their stuff any good?
If you've been burned, I'm betting it's because you discovered the advisor had shortcoming but you didn't do anything about them. When I get fooled --- and I still do --- the cause is lack of congruence.
Promod Sharma is an actuary, blogger an advocate. He used to design health and life insurance products. He helped advisors sell them. He now uses those insider insights conduct fee-only insurance reviews. http://www.taxevity.com/