Report reveals the ways asset managers can gain clients' trust – and lose it easily
Enduring relationships are built on trust – and according to new research from Chestnut Advisory Group, it might be the most important factor for asset managers to amass and keeping investor capital.
According to the research, the most admired asset managers cultivate trust not by focusing on its performance and accolades, but by communicating and delivering on a message of investor focus. That aligns with a long-standing concept of trust as a blend of competence and warmth, reported Institutional Investor.
“Extensive research shows that no amount of competence can compensate for a lack of warmth,” the report said. “When competence is high and warmth is low, the emotion evoked is envy… Investors’ best interests are not expected to be important to these managers.”
Read more: Why trust is a must for financial advisors
Managers can demonstrate warmth in several ways, such as by attempting to educate investors through thought leadership with knowledge that could support an investor's overarching objective or by developing a focused target that reveals a thorough comprehension of clients' objectives and established shared values.
“What you’re getting when you’re hiring an asset manager is a very high-value contract. And what you’re getting is a non-tangible item,” Amanda Tepper, founder and CEO of Chestnut Advisory Group, told Institutional Investor.
This means that while investors can carry out meticulous due diligence, the partnership is fundamentally a contract of trust, which is particularly useful in tumultuous and uncertain times.
Investors were shown to keep a capable and trustworthy manager for up to a year longer than partners they didn't trust, even during periods of subpar performance. Tepper emphasized businesses like T. Rowe Price, Capital Group, and MFS—none of which are Chestnut clients— that repeatedly stress the importance of stability and make references to the truth of their professed principles.
Read more: ‘It’s important to not only talk the talk but walk the walk’
“You can’t get hired and then go away for three years and then after the markets blow up go, ‘Wow, we need to say something now.’ If you already have that message and you’re repeating it and repeating it, people are really listening during a stressful time and they’re very reassured,” Tepper said.
Equally important are cultural values, which many allocators are considering more frequently.
“When a manager makes false claims regarding common values, they are inevitably and sometimes irreparably eroding trust,” the report stated.
Warmth, and by extension trust, can be damaged by failing to live up to a crucial expectation, the research said, adding that warmth "can be earned relatively quickly and lost instantly."
Chestnut discovered that the majority of managers based their whole messaging on competence, emphasizing the "what" and "how," with details centered on investment strategies and asset classes, senior management bios, or current investments and the ideas that drive them.
According to the report, managers have complete control over the development of trust.
Even if the "whats" and "hows" of an investor's offerings and execution are vital, many managers overlook the "why," which is the most crucial factor.
“The ‘why’ isn’t about you,” Tepper said. “It’s about the client. What do they care about, and why should they trust you?”
