A Further Look – Trust Requires More Than Words

David Root, CFP®


"Whoever is careless with the truth in small matters cannot be trusted with important matters." --Albert Einstein


Whether it’s a friendship, a family relationship, a business or personal partnership, or an affiliation between individuals and an institution, all bonds are built on trust. In 1912, JP Morgan, patriarch of the banking dynasty, told Congress in hearings that ultimately led to the foundation of the US Federal Reserve that the first thing in assessing a borrower’s credit quality was “Character, before money or anything else. Money cannot buy it.” Without trust, little else matters.


Fast forward to today, and Morgan’s statement perhaps rings even more true. The information age has ushered in the democratization and ubiquity of data. However in many instances, the pursuit of accurate information, or the unbridled truth, remains elusive.


While equally applicable to recent geopolitical events, the struggle for accurate and timely information is ever present in the financial markets. Investors today can acquire data and opinions for free via the media and the internet. Instant updates are delivered on your phone and you need only tune in to one of the many financial channels to get the most recent market data points.

However, this information often lacks appropriate context or is easily manipulated to fit within a personal, business or even political agenda. What is most concerning about partial truths or outright falsehoods is that it is exceedingly difficult for us as human beings to recognize misinformation. And interestingly, even when we know information is false, it can be incredibly difficult to pull apart the untruth and move on from it.


Lisa Fazio, Associate Professor of Psychology and Human Development at Vanderbilt University recently addressed our natural obstacles in identifying misinformation, “With false information you can make it really engaging, really catchy, really easy to believe. And the truth is often complicated and nuanced and much more complex. So it can be really hard to come up with easy ways of describing complicated information in a way that makes it as easy to believe as the false information.”


“One idea (to combat misinformation) is what we call a ‘truth sandwich.’ Facts are useful, but not enough to actually fix the issue. You have to address the false information directly. So, in a truth sandwich, you start with true information, then discuss the false information and why it’s wrong — and who might have motivation for spreading it — and come back to the true information.” (emphasis added)


While the applications are wide ranging, the implication for financial institutions and financial professionals is important. Without trust in financial institutions, those who work in them, or the media who cover them, the investor is left without the critical information necessary to make sound decisions that impact their financial future. Consider this - The US ranks last among 46 countries in trust in media, a Reuters Institute report finds. Just 29% of people surveyed in the U.S. said they trust the news, compared to 45% in Canada and 54% in Brazil. And further, only 30% of Americans trust financial institutions and only 20% trust large financial corporations according to the Chicago Booth / Kellogg School Financial Trust Index. What do you think of that ‘truth sandwich?’


While it is convenient to have instant access to many sources of financial information, none of us can afford to guess which source is worthy of our trust. That’s why we perform our own independent research focused entirely on the raw, unvarnished data, as well as source additional research from our independent partners. Our goal is to provide objective, sophisticated, and timely independent analysis of investments, markets and the economy to our team and our clients.


Unfortunately, many in our industry have built reputations on selling products, regardless of whether those financial products are in the client’s best interest. Not only does government regulation allow this practice, the regulatory bar for selling financial products is set exceedingly low. From a regulatory standpoint, an investment sold by a brokerage firm must merely be ‘suitable’ for an investor. Of course, the definition of ‘suitable’ can be broad in practice. And further, can be bent to ‘suit’ the seller’s motivations. For example, an investment representative whose income depends on earning commissions on investments, such as mutual funds or private equity funds for instance, may be incentivized to recommend an investment that is more expensive, therefore netting the selling advisor and the firm a higher commission.


To us, this is entirely backwards. The client’s best interest should always come first, there should never be a conflict of interest between advisor and client, and advisors must have the specialized skills to solve client needs – whether investment, retirement planning or financial planning related. Simply being an intermediary between financial product and buyer is inherently counterproductive and deficient. Further, trust in the advisor-client relationship is paramount, even sacred, and can even be compared to the Hippocratic Oath of the medical community – first, do no harm; perform to the best of one’s ability; preserve privacy; and gladly share knowledge.


An investor’s greatest line of defense is to work with a well-credentialed fiduciary that is responsible to provide independent advice for a transparent fee. The fiduciary standard has been called “The highest standard under the law” and requires independent advisors to only make recommendations that fit the client’s needs and are in the client’s best interest.


Advisors with designations such as a CFP® (CERTIFIED FINANCIAL PLANNER™) and CFA (Chartered Financial Analyst) charter holders demonstrate the requisite qualifications as each must meet the governing body’s requirements for education, passing examinations, working experience, and ethics. For fiduciary retirement plan advisory, advisors with AIFA® (Accredited Investment Fiduciary Analyst), CFA, CPFA™ (Certified Plan Fiduciary Advisor), and ChFC® (Chartered Financial Consultant®) demonstrate the appropriate investment in knowledge. For example, The Center for Fiduciary Studies offers designations such as the AIF (the prerequisite to AIFA), which involves learning the fiduciary standards of care and the 21 Prudent Fiduciary Practices. There is a vast difference between advisors proclaiming to ‘act in your best interest’ and those who actually perform their duties as credentialed fiduciaries.

Credentials should be important for gaining trust, and at the very least require the individual or firm to develop the knowledge and skills required to best perform for clients. But as JP Morgan counseled, character must come first.


In our firm, advisors cannot offer advice until attaining one or more of these credentials. Adhering to the fiduciary standard is integral in our firm, and applying fiduciary best practices permeates our ethos. We continually strive to further this endeavor and recently obtained the CEFEX (Center for Fiduciary Excellence) certification to verify and maintain fiduciary best practices. It is the standard in our industry, and there are currently less than 300 firms worldwide with the designation.


With so many available sources of financial information, we work daily to ensure your source isn’t blurred by any conflict of interest, has the requisite knowledge and skillset to deliver a desired outcome, and upholds the strongest individual character. Trust isn’t given, it must be earned.


Thanks for reading.


Dave


David Root, CFP®

Founder and CEO

DBR & CO


David Root, CFP®


David Root, CFP® is Founder and CEO at DBR & CO, a Pittsburgh-based wealth management firm. If you would like to contact the author, please e-mail him at d.rootjr@dbroot.com or call 412-227-2800.


This material has been provided for general, informational purposes only, represents only a summary of the topics discussed, and is not suitable for everyone. The information contained herein should not be construed as personalized investment advice or recommendations. Rather, they simply reflect the opinions and views of the author. D. B. Root & Company, LLC. does not provide legal, tax, or accounting advice. Before making decisions with legal, tax, or accounting ramifications, you should consult appropriate professionals for advice that is specific to your situation. There can be no assurance that any particular strategy or investment will prove profitable. This document contains information derived from third party sources. Although we believe these third-party sources to be reliable, we make no representations as to the accuracy or completeness of any information derived from such sources, and take no responsibility therefore. This document contains certain forward-looking statements signaled by words such as "anticipate," "expect", or "believe" that indicate future possibilities. Due to known and unknown risks, other uncertainties and factors, actual results may differ materially from the expectations portrayed in such forward-looking statements. As such, there is no guarantee that the expectations, beliefs, views and opinions expressed in this document will come to pass. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.

All investment strategies have the potential for profit or loss. Asset allocation and diversification do not ensure or guarantee better performance and cannot eliminate the risk of investment losses.

The impact of the outbreak of COVID-19 on the economy is highly uncertain. Valuations and economic data may change more rapidly and significantly than under standard market conditions. COVID-19 has and will continue based on economic forecasts to have a material impact on the US and global economy for an unknown period.

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