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Question of trust

It is interesting to ponder consumer behaviour in troubled times. What do they want from financial services in a turbulent market?

In the first quarter of this year, more consumers sought professional advice when deciding on their mortgage than in previous years, including 82 per cent of first-time buyers. In troubled times, consumers place an increased value on professional advice. Why should this be the case? It could be argued that in more difficult times, the risk of poor performance increases and consumers look for someone to blame.

It is true that the notion of the relationship between risk and reward has been eroded. We must not let consumers assume that poor stockmarket performance means they have been mis-sold to. Investment is a medium to long-term business and consumers who cannot commit to that should be offered alternative strategies.

So what makes consumers turn to advisers in troubled times? For me, it is about trust and the fact that the adviser is on their side and focused on putting their needs first. A professional who understands markets and acts in their best interests is readily sought after.

Trust is not built quickly or easily. It is often not truly formed until it has suffered adversity. Friendships that have endured difficult times are often the most solid.

If people want advice now and are more willing to trust it, why has it not always been so? I think for many IFAs and their clients, there has always been clarity about this position of trust. When we conducted a survey among IFA clients, levels of trust were remarkable. IFA clients rate IFAs far more highly than other parts of the financial services world. That is because it is a long-term relationship.

Sadly, an entire industry was created in the complaint management sector during the last bear market. The message that it was foolish not to complain was starting to take hold. That is why Aifa campaigned so hard to have complaint management firms regulated – a task we achieved with the introduction of the Compensation Act.

There are lessons to learn from that experience. This is the time to be advising clients on how bad the year ahead could be. Business models based on recurring income for delivering ongoing advice are well placed to weather the storm. Certainly, mortgage brokers I speak to want to learn the lessons from the IFA market about long-term relationships.

Trust has been a rare commodity in our market. IFAs have been the honourable exception. Those who build long-term relationships, who are not afraid to have difficult conversations with clients about market conditions and who know that the relationship is based on trust will do very well.

Chris Cummings is director general at Aifa

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