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President at DALBAR, Inc.
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Founder and leader of Dalbar, Lou Harvey is relentless in the search for the forces that are shaping the world of financial services today, tomorrow and for years hence. Using Dalbar’s research capabilities, Lou Harvey seeks insights from inside and outside the industry to understand and ... more

The Erosion and Recovery of Advisor Reputation

Date: Sunday, October 25, 2015 2:00 PM EDT

The Erosion and Recovery of Advisor Reputation

Financial advisors face reputation erosion driven by damaging generalizations by the consumer media, consumer advocates, regulators and a history of scandals. This reputation erosion has been overcome to date by successful advisors but is a challenge and a danger, nonetheless.

The solution must begin with understanding that there are advisors that deserve the bad reputation as well as those who do not. The obvious next step is to differentiate the good advisors from the bad advisors in the eyes of the media, consumer advocates, regulators and the general public. Such a differentiation must also account for the indifferent advisors who are actually the largest group!

  • Good advisors are those who do not deserve this reputation erosion.
  • Bad advisors should not be allowed to practice.
  • Indifferent advisors must proactively adopt better practices.

Several initiatives have been undertaken to address the generalized reputation erosion but have all fallen short. Retail advertising has been thwarted by prohibitions against a meaningful message. Regulations do not differentiate between the good advisors and others. Accreditations for skills are poorly understood by the general public. Disclosures create the impression that there is something being hidden. Agreements define the role of the advisor more narrowly than clients expect.

Additionally, the effectiveness of these initiatives has been weakened because the solutions tend to be too insular, are not expressed in consumer terms, are too complex, are poorly communicated and implemented at a bare minimum level, as well as being subject to industry resistance.

The most powerful way to combat the erosion of an advisor’s reputation is to use the positive experience of his/her clients. Successful advisors already do this by seeking referrals from their clients. Winning referral business is the economic incentive to being a good advisor. Giving clients as references is another way for good advisors to fight the reputation erosion that exists in the public’s mind but this is a burden on clients if used repeatedly.

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