CHICAGO - Financial advisors need to change the dialogue they are having with clients in order to overcome the dramatic decline in public’s trust in banks since the financial crisis, Merrill Lynch Wealth Management Head John Thiel said Thursday.
“We got drunk with the performance of the bull market, 12% a year every year in equities from 1982 to 2000,” Thiel told the audience of wealth management professionals at the SIFMA Private Client conference on Thursday. “But the world changed and our dialogue, our approach, didn’t. It needs to. We need to talk about what our clients goals, concerns and priorities are and map absolute performance to that objective.”
Thiel’s challenge to the industry comes as the public’s trust in banks has fallen 16% from 2008 to 2012, he said. That comes as a study from Gallup shows the public has lost confidence in every institution but one - the U.S. military.
For the financial services industry, there is an upside: the experience of having climbed back from past downturns, Thiel said, including the Depression, early ‘70s, late ‘80s and early 2000’s. “We have been here before. We can fix this. We can repair our reputation,” Thiel said.
And for financial advisors and those providing financial advice, there is another positive: people are increasingly looking to people they trust for advice instead of institutions, according to Thiel.
“That’s called a referral. And what are we really good at, what are our advisors really good at? They’re good at building long-term trusting relationships,” Thiel said. “How are we going to get our reputation back where it belongs? We are going to leverage this reality and leverage our teams and what we do best.”
Changing the dialogue that both advisors and wealth management executives have with clients can come through several steps, according to Thiel. The first priority should be taking out all of the jargon industry professionals use in their conversations with clients, and instead just use plain language.
“We feel compelled to take our clients through the kitchen, through the grocery store, build the house and then tell them what we can do for them,” Thiel said. “And they only wanted to hear, ‘Can I retire? Do I have enough money? Can my child go to Harvard?’”
Next, advisors need to emphasize benchmarks versus goals. Conversations with clients should not emphasize the performance of the S&P 500, but instead should measure how close they are coming to their personal goals, including preserving their lifestyle, giving back through philanthropy and passing their wealth on to their children.
Thiel also called for advisors to embrace clients’ emotions rather than avoiding them. “Put it in context, see how it changes with volatility and other things that happen in the world, but let’s not ignore it,” Thiel said.
And finally, advisors also need to keep clients’ entire situation in mind, in a step Thiel called asset allocation versus resource allocation. That means acknowledging everything that clients may be going through and anticipating their needs.
“It could be illness, it could be a family event. It could have nothing to do with the markets,” Thiel said. “We have to look at our clients and all of the resources they have.”
Adhering to those priorities has been sometimes difficult for the financial services industry, Thiel acknowledged, where professionals are often eager to show clients how much they know. But changing the way the industry communicates will be the key to regaining trust, he said.
“We’re talking about, in some cases, literally changing the way we’re wired, to actually stop and listen and don’t tell,” Thiel said. “But other industries have done it, and we can do it too.”
