Blog Entries by Jack Waymire, Founder, Paladin Research & Registry

Five Tips for Using Transparency to Create Competitive Advantage

Last month, Paladin Research surveyed 100 high quality advisors and asked them to describe how they used transparency to help them market financial advice and services to investors. 11 advisors said they used transparency in their marketing. Amazingly, only 23 of the advisors in the survey agreed on a frequently used definition for transparency. It turned out there were a number of descriptions for an investor-friendly process that should be used by more advisors.

An important first step is to agree on a common definition for transparency. The one that made the most sense to the majority of advisors in our survey was as follows: “Transparency is a voluntary process that advisors use to communicate complete, accurate information to investors for their credentials, ethics, business practices, services, and results”.

Professionals who adopt this marketing practice should advise investors to avoid advisors who do not practice transparency. Investors do not have to know what information is being withheld from them or why. They just have to know withheld information creates hidden risks.

1. The Practitioners

Only high quality advisors, who have nothing to hide, can afford to practice transparency. If your marketing practices include withholding information from investors, you are not in a position to practice full transparency. This explains why transparency is such an important benefit for investors. Its practitioners are limited to the best advisors.

2. Voluntary Process

In my opinion, this is transparency’s most important investor benefit. When you volunteer information, investors do not have to know the right questions to ask to obtain the information they need to make the right selection and retention decisions.

Paladin research shows less than 5% of investors claim they have a process for gathering data from prospective financial advisors. In fact, they rely on sales presentations to obtain the information they need to make the right decisions when they select financial advisors.

Only 15.8% of investors said they believed they knew the right questions to ask to determine the competence and trustworthiness of financial advisors. So, advisors’ willingness to volunteer information is a major benefit for these investors.

3. Complete & Accurate Information

You are not practicing full transparency if you disclose some information and withhold other information from investors. This is a common business practices for a high percentage of advisors. They provide information that makes them look good and they withhold information that describes potential weaknesses. The withholding of information is a relatively safe marketing practice because investors don’t know what they don’t know. However, that marketing practice starts to break down when some advisors begin educating investors about transparency.

4. Documentation

Advisors who practice transparency should be willing to document their information. This further differentiates you from advisors who withhold information. I would make the case that 80% of verbal information is a sales pitch that is designed to sell investment products. And advisors do not document sales pitches that contain sales claims that are designed to convince investors to buy what they are selling. Documentation could be used against them in future disputes.

I have interviewed numerous advisors who said documentation reduces the impact of their sales skills. I suspect it also impacts sales claims that may or may not be completely accurate.

Investors need to know high quality advisors practice transparency that includes documentation. Low quality advisors prefer verbal sales pitches and undocumented claims.

5. Who Should Investors Trust?

81.4% of investors base trust on the likeability factor. In other words, they inherently trust people they like and distrust people they don’t like. Wall Street figured this out decades ago when it added personality tests to its recruitment processes. However, you and I know personalities have nothing to do with trustworthiness. In fact, likeability can be part of sales processes called rapport building and relationship management.

So who should investors trust with their assets and their financial futures? Friendly advisors who tell them what they want to hear? Or, competent, ethical professionals who practice full, documented transparency.

How About a Guide?

No investor will connect all of these dots. You will have to do it for them. I recommend developing a three-page guide that describes the transparency process, the data that are disclosed to investors, and why investors should limit their selection to advisors who practice full, written transparency. And, the more you apply the information in the Guide to your competitors, the greater your advantage.

Jack Waymire spent 28 years in the financial services industry. For 21 of those years he was the president of an RIA that provided money management services to more than 50,000 individual and institutional investors. He is the author of Who's Watching Your Money? that was published in 2003 and the founder of Paladin Research & Registry ( ) that matches investors to pre-screened, 5 Star rated RIAs and IARs.

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