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.

Good advisors can also proactively combat reputation erosion by correctly measuring client experiences and using these measures[1] to attract and win and retain business. Prospective clients, whether individuals or institutions, place great value on the first hand experience of other clients. Such client experience measures must focus on the factors that most influence clients decisions… decisions to engage the advisor. There are four measures that dominate the client’s decision making when engaging an advisor:

• Trust: The most powerful answer to reputation erosion is a credible measure of the trust of existing clients. For most prospective clients, a lack of trust will rule out an advisor. In some cases, proof of a high level of trust may be the only factor needed to decide on engaging an advisor.
• Expertise: Clients put greater weight on other client’s opinion of an advisor’s expertise than the affiliations, education, training or designations the advisor holds. While the clients’ view of expertise will not align with industry standards, it is the client’s view that drives decisions and influence prospective clients.
• Results: While disclosure of returns achieved is very important, prospective clients are more persuaded if results meet clients’ aspirations and the expectations that advisors set along the way. Clients recognize that there are differences in personal choices and individual situations that affect statistical results, so the ability to understand aspirations and set achievable expectations is paramount.
• Service: Accessibility, keeping clients informed, problem solving, clear communication and how the client is treated are the main influencers of the service experience.

Advisors, who focus their practice in these four areas, overcome the doubts and indecision caused by reputation erosion. Success, however, requires more than delivering and measuring the client experiences.

Success requires that advisors communicate these achievements credibly, clearly and effectively.

[1] Use of these client based measures for advertising or promotion requires compliance with the SEC No-Action Letter issued to DALBAR, Inc. on March 24, 1998.