Trust is critical to establishing good relationships with clients, but thanks to a painful financial crisis and countless scandals, the financial industry has long suffered a trust deficit. So what’s an advisor to do? Talk about it, experts say.

Discussing ethics with your client at the outset can help develop a trusting relationship. While most financial professionals follow some code of ethics, many clients don't actually know what those are, says Tom Robinson, a managing director at CFA Institute.

"Certainly there are some people out there -- as evidenced by the financial crisis the past few years -- that behave improperly," Robinson says. "It’s important for clients to know that their interests are first, and that’s their right.”

In an effort to provide retail investors with a framework to understand what they “are entitled to expect from financial service providers,” the CFA Institute recently released its "Statement of Investor Rights."

According to the CFA Institute, investors have a right to:

  1. Honest, competent, and ethical conduct that complies with applicable law;
  2. Independent and objective advice and assistance based on informed analysis, prudent judgment and diligent effort;
  3. My financial interests taking precedence over those of the professional and the organization;
  4. Fair treatment with respect to other clients;
  5. Disclosure of any existing or potential conflicts of interest in providing products or services to me;
  6. An understanding of my circumstances, so that any advice provided is suitable and based on my financial objectives and constraints;
  7. Clear, accurate, complete, and timely communications that use plain language and are presented in a format that conveys the information effectively;
  8. An explanation of all fees and costs charged to me, and information showing these expenses to be fair and reasonable;
  9. Confidentiality of my information;
  10. Appropriate and complete records to support the work done on my behalf.

Most advisors know these rules, Robinson says, but clients are not always aware of what codes and standards their financial advisors follow. Not all advisors are legally obligated to adhere to a fiduciary standard, but no matter what, it’s important to let your clients know where you stand.

Mitch Kraskin, chief executive and co-founder of Compliance Science, a New York-based provider of compliance technology, says that sitting down with clients and having a discussion about their rights is necessary to build trust. Talking about the ethics you follow both at the start of the relationship and periodically throughout can help reinforce trust, he says.

“It would be a healthy dialogue for the investment professional to talk to the investor,” Kraskin says. “It sets a good tone for how the rep is going to be positioned. Whether it’s the firm’s code of ethics and conduct or the CFA’s, nothing should be undisclosed.”

That said, Kraskin argues that the onus is on the client to ask questions until they are sure they understand what services their advisor is going to provide them.

“You can’t lay all the responsibility on the representative,” says Kraskin. “I recommend that all of the parties involved in this relationship participate in the discussion.”


Part of helping your clients understand their rights is making sure they feel comfortable asking questions, says Mag Black-Scott, chief executive and president of Beverly Hills Capital Management. “Some people -- especially higher up people --are embarrassed to say they don’t know the difference between a stock and a rock. You need to make sure they don’t feel embarrassed when they come to you,” she says.

Advisors should do what they can to help clients communicate what they need and make sure they don’t feel embarrassed if there’s something they don’t understand, Black-Scott says. “You have to help the client verbalize what it is that they’re looking for.”

Being too nervous can lead to serious misunderstanding. Black-Scott urges advisors to put themselves in clients’ shoes to avoid responding in a way that makes clients feel foolish when they don't understand. “We don’t teach people in school what to do with money when they earn it. Sometimes questions sound naïve, but it doesn’t matter,” she says.


When engaging in open discussions with clients, don’t be embarrassed by the fees you charge, advisors say. Paul Saganey, a CFP and president and founder of Integrated Financial Partners, a fee-based financial services firm in Waltham, Mass., teaches a class that helps financial advisors validatetheir fees.

If you’re providing clients with the right amount of disclosure, they’re going to see the fee whether or not you discuss it, he tells advisors. “If you try to sneak through it, clients will see that,” Saganey says. “Show the fee to them. Lay it out in detail and you’ll avoid frustration or nervousness from your clients. Have the discussion upfront before you implement the financial planning. Be proactive, not reactive.”

It’s also good to own the fee -- know that your fee reflects the work that you do. “I don’t think in this industry we should be bashful or ashamed of earning a good living,” says Joel Johnson, a CFP and managing partner of Johnson Brunetti, an independent retirement planning firm in Connecticut. “If someone asks about fees, chances are [you] should have said it upfront.”


Being honest about your disciplinary history is a good idea, too. If you have any marks on your record with FINRA or the SEC, don’t be afraid to explain if a client asks you about it.

“Be open about it. Don’t tell people upfront but don’t be bashful about that," Johnson adds. "I don’t think clients expect us to be perfect."

In many cases, the history behind disciplinary marks or complaints is less complicated than it may appear to a client surfing BrokerCheck. Thomas B. Lewis, a civil trial attorney with Stevens & Lee in Lawrenceville, N.J., says it makes "abundant sense" to discuss marks on your record that can be readily explained.

"In these cases, it might be prudent to bring it up with your client even before they ask. Be aware of the fact that it is likely that potential clients will look you up before starting the relationship," he says.

Lewis adds that discussing your disciplinary history with clients upfront can prevent them from taking their business elsewhere after a preliminary internet search. "Some advisors may say why bring it up if it's negative? I think it would have the opposite effect. The client is going to say 'This person is being upfront and honest with me, and I like that."

However, don't be afraid to be judicious about which marks you discuss. Some may not be the best to bring up initially, he says. Ask yourself, "Can I explain this to my client in a way that makes sense?" If the answer is yes, a little honesty may go a long way.

Register or login for access to this item and much more

All On Wall Street content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access