The key component in the advisor-client relationship

October 5, 2017 (Updated October 26, 2017)


Vanguard recognizes that understanding the behavior of your clients is vital in helping them realize their goals. That's why we created Advised investor insights™, an ongoing, proprietary research series that provides actionable insights on investor behavior.

In the latest report, we found that trust remained the most important element of advisors' relationships with their clients. Without it, clients were more likely to end the relationship and much less likely to recommend their advisor to family or friends. Nearly one-quarter of investors said they had an experience that undermined their trust in their current or previous advisor.

Deeper trust can lead to greater client loyalty, increased referrals, and favorable business outcomes, such as client growth. To increase the level of trust, financial advisors can employ a variety of approaches focusing on elements of emotional, ethical, and functional trust.

Components of trust

Functional trust is described as investors' confidence in their advisors' credentials and skills and in the day-to-day operation of their advisors' practices. Advisors can establish functional trust by presenting their industry qualifications, creating and executing financial plans, and being proactive with client communications.

Emotional trust is summarized as the intangible aspects of the relationship between the investor and financial advisor that bring about positive feelings or sensibilities in the investor. Examples of emotional trust are investors saying their advisor is "my advocate," "provides a sense of relief," and "makes me feel my portfolio is important."

Ethical trust involves advisor practices or behaviors that are consistent with socially set expectations of correct conduct. The absence of a conflict of interest, charging reasonable compensation, and acting in the best interests of the client are examples of ethical trust.

To review the resources from the first installment of this research series, go to Advised Investor Insights under Wealth management in Research & Commentary.

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