Financial planning is an intangible service that is hard for most consumers to evaluate (at least, until they’ve actually been through it). And because of the uncertainty about whether the advisor will provide good financial planning value, perceived trust plays an important role in choosing a financial advisor. Yet, most advisors have few credible ways to convey trustworthiness, particularly when getting started – and as a result, will often choose to work for a large well-established firm, in the hopes of leveraging the big brand of a large firm to increase their perceived trustworthiness and ultimately win more clients.
In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we explore whether it’s really necessary to have a big firm brand in order to succeed as a new financial advisor, and whether choosing to affiliate with a well-established national firm is really still the asset it once was.
Because while it’s true that a well-known national financial services brand can lend credibility to advisors – especially for new advisors – and help them build trust with their clients, as we’ve seen following the most recent financial crisis, a firm’s brand may become a liability as well. This is particularly concerning given that changes to a large firm’s brand are almost always out of an advisor’s control, even though the advisor’s business may suffer the consequences.
Fortunately, the reality is that for most advisors, the importance of a firm’s brand will diminish with time. While clients may initially rely it as the basis for their trust, after gaining experience working with an advisor, client trust begins to shift from the firm to the specific advisor they are actually working with. This shift helps to explain why most advisors still retained most clients (even if they worked at a large firm whose reputation was sullied by the financial crisis), and similar is why most advisors who go independent (to a firm without a known consumer brand) still end out retaining most of their clients.
Fortunately for advisors who may have no desire to work for a big firm, there are other methods for developing trustworthiness as well. Having an effective website, and maintaining professional appearance and conduct, really matter when clients don’t have many other indicators of trust to rely upon. And independent advisors can and often do leverage the brands of their RIA custodians – most of which are national consumer brands as well. But ultimately, the “fastest” way to build a trusted brand is still through the development of a niche. Because the reality is that most individual independent advisors will never have the potential to become a nationally known consumer brand… but it is possible to become the known, liked, and trusted expert in a particular niche community in just a few years, which is more than enough for one advisor to build a successful practice!