Determinants of Trust and Commitment in Planner-Client Relationship

Name

Institution
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Introduction

Financial planners need to have relationships with their clients established, despite this
fact, there has been little work that examines the factors that contribute to the development of
these relationships (Edvardsson, Klaus, Payne, and Frow, 2014). The currently available
researches use the frameworks from marketing literature in the examination of the effects of the
factors that determine the levels of trust and the commitment that clients have towards their
planner (Basu, et al., 2002). The data was collected through the path analysis and the research
found that communication plays an important role in determining the levels of trust and trust is
also a related variable towards commitment (Bstieler, 2006).

There is a need for trust, this is because one seldom gives their money to a stranger,
willingly (Cicmil, Williams, Thomas, and Hodgson. 2006). This is a fact that has been identified
by the financial service providers and they have always emphasised the need to establish a
relationship with the client to gain their patronage. The trust is gained from the annual calendar
from an insurance agent, the monthly card from the mortgage banker, and the birthday card from
a stockbroker are just examples of service providers creating customer relationships with their
clients (Cserháti, Gabriella, and Lajos Szabó. 2014). While the financial industry has long
recognised the importance of the establishment of customer relationships, little research has been
conducted in the area, with many researchers avoiding the area of building relationships between
financial practitioners. The research therefore explores, if a model can be applied from the
marketing researchers such as Raggio, Walz, Godbole, and Folse (2014 p 34)) to building
sustainable relationships in the financial service industry. The research seeks to find a model that
can help in defining ways of building the relationship between financial planners and their
clients. The marketing models, such as the ones proposed by Morgan and Hunt (Morgan and
Hunt, 1994.) can be applied to any type of relationship, the model has only been tested on
business-to-business relationships and not on business-to-individual relationships (p 38).

The financial relationship is a new area in the money market. The market is the same as
the other knowledge-based industries such as accounting and law, this is because like the
professions have shown above, the financial practitioners also charge their clients fees. The
relationship between the planners and their clients must be maintained at all the time so that the
financial plan’s core product is implemented for success. Since financial plans take time to be
approved and implemented and also go through monitoring, there is a need for maintenance as
the key to financial planning (Kwok, Sharma, Gaur, and Ueno, 2019). The discussion of how to
maintain and develop a successful business relationship is an area of interest for many financial
practitioners, however, the literature has lagged in the development of the research and theories
that are important in the topic. The situation is however changing for the financial practitioner as
the marketing literature is being shaped to be accommodated in financial planning (Pavlou,
Liang & Xue, 2007). The marketing function in firms has always had an external focus hence
allowing it to adjust the market positioning hence help the companies find the customer for their
products. Marketing theories have developed the theory that the cost of developing and finding
new customers is much higher than maintaining healthy relationships with the existing
customers, the financial firms are also delving into the principles of marketing to help them
develop procedures and programs that lead to productive customer relationships.
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The marketing publications have been published on the special topic of marketing
relationships. The gap in the research is therefore to develop a theory that regards the
development of the relationships between the consumer and the firm (Pareek and Harrison,
2020). The current literature focuses on the advice for practitioners on development and
improving the customer relationships instead of the development of the theoretical models
similar to the ones developed in marketing. The research, therefore, differs from the other
researches in the development of models that were developed for general use in the research for
exchange of relationships.

Method

For the sample data, three national associations of financial planners who are certified
under the Institute of Certified Financial Planning were asked to assist in the financial survey.
The associations: NAPFA, ICFP, IAFP contributed their member's names at random to assist in
the financial planning (de Oliveira, Possamai, Dalla Valentina, and Flesch. 2012). The members
were asked through the mail and asked to take part in the participation. They participated by
providing access to their clients, at least 12%, and to keep the numbers low, the access was
limited to a maximum of 20 per planner (Erkutlu, 2012). The planners who participated were
provided with various options, such as giving their client's addresses, and any letter sent to the
client within the previous year. The response was low, however, the data collected was enough to
help with the study (Fowler, Jeremy and Pat Horan. 2007). Across the three organisations were
10.9%, 4.3%, and 4.8%. From the total of 1200 client lists provided by the financial planners,
only two envelopes containing letters to clients were returned. The response rates by clients in
the three organisations varied, for the first organisation, it was 14%, for the second organisation,
it was 47.8% and for the third was 31.7%. The MANOVA analysis method was used in
analysing the results, with the organisation affiliation as the major predictor variable. The result
was that there was no difference in response among the three organisations, hence the data was
treated as coming from one group.

When looking at the sample characteristics, over 50% of the sample, showed that their
income was below $100,000 and this suggested that the wealth planners were not only rendering
their services to the wealthy alone, the data, however, did not differentiate if the income in
question was an earned or investment income. The difference between the two is still important.
Most respondents (70%) were married, and almost half (48%) had used a different planner other
than the one they are using currently. Most correspondents that had used more than one planner
had only had one other planner apart from the one they currently have. The planner client
relationship was long, with the average duration of client per planner being 5 years. More than
half of the correspondents showed that they had monetary compensation for their financial
services, the compensation was through fees and commissions.

The measure for relationship benefits asked every respondent to evaluate the benefits of
the relationship between him and his financial consultant when compared to doing all the work
on their own. The major topics were tax, investment, college planning, and healthcare. Other
areas include debt management and estate planning. The sample characteristics data are
summarised in the table below;
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Characteristic N %

Annual Income 78
21.4%
Under $40,000 200
54.9%
$40,000 to $100,000 34
9.3%
$120,000 to $150,000 25
6.9%
$151,000 to $200,000 17
4.7%
Over $200,000 10
2.7%

Characteristic Items Mean Value Std. Dev Cronbach’s

Alpha
Terminating costs 7 3.4 1.6 0.78
Relations Benefits 20 1.9 1.2 0.73
Communication 34 1.8 1.0 0.91
Shared Values 5 2.1 1.4 0.78
Trust 7 6.2 1.4 0.93
Commitment 5 1.4 0.9 0.76

The analysis was carried out using SAS statistical software, the analysis used the
maximum likelihood in the parameter measurements and all analyses were also performed based
on the variance-covariance matrix (Hussein, Bassam. 2013). The chi-square statistic for this
study was significant hence showed that the data were fitted to the model. The goodness of fit
index such as the Non-normed Index and Comparative Fit Index were also used in the data
(Pearce and B. Barkus. 2004) From the result, the trust had the largest impact on the level of
commitment of clients, with communication closely following. The other variables had
significance in the research except for opportunistic behavior that did not have any significance
at all.

Results

The primary objective of the research was to find out the efficacy of the models
developed by Morgan and Hunt (1994) for determining the factors that determine the
relationship between financial planners and their clients. From the research, Morgan, and Hunt's
model is good in portraying the antecedents of trust and commitment within the financial
planning client–planner relationship (Wong, Wei, Sai On Cheung, Tak, and Hoi, 2008). The
corresponding 60% of the variance in commitment and also 54% in the trust are also found in the
Morgan and Hunt models (Morgan and Hunt, 1994). Therefore, the research found that there is a
strong relationship between trust, communication, and commitment (Hussein, Bassam, and
Kristin, 2016). Trust is an interactive relationship where the past influences the current
interactions affects the future interactions (Limsila, Kedsuda, and Stephen 2008). The interaction
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style and how they affect the relationships that are examined in the research is mainly on
communication interactions. In this type of relationship, the client expresses their future financial
goals and the planner helps by explaining what they can do to help the client reach their goals. In
many cases, however, factors that affect the achievement of goals are not under the control of the
financial planner (Maurer, 2010; Müller, Ralf, and Rodney 2007).

In case the goals were not met, the planner must explain what factors made the goals not
be met, or even exceeded. When there is constant communication, then the inability to reach
goals should not have a negative impact on trust (McLeod, Laurie, and Stephen G. MacDonell.
2011). Therefore, communication is the most important factor in keeping the client-financial
practitioner glue together. This means that good communication should lead to higher levels of
trust. Since the development of trust takes time (Koufteros, Xenophon, Greg, and Rauniar,
2010), it is the client who must show high levels of commitment in maintaining the relationship
with the planner she trusts. On the other hand, the opportunistic behavior did not have a
significant impact on the low levels of trust. One reason for the lack of significance due to the
ceiling effect in data (PMI—Project Management Institute. 2013). There are few planners,
especially the ones included in the research that exhibited the ceiling behavior (Gulzar, Mohsin,
Naeema, Ebtisam, Maria and Nadeem, 2012). The impact of the opportunistic behavior could
have been different when the former clients left by clients could have been contacted during the
research.

The research also points to the fact that there are relatively low effects of the costs of
terminating relationships with clients. Many clients have realised that changing planners hugely
affect their turnover (Wiewiora, et al., 2014), however, some clients still maintain that they can
still achieve these goals with a different planner (Rees, 2008). The study, therefore, gives the
first step in the development of more complete factors that affect the relationship between
financial planner and their clients. The research suggests that planner that is successful in
maintaining client relationships are also successful in their career (Schein, 2010). They also
experience a higher level of commitment from clients than financial practitioner that does no pay
attention to the interpersonal aspects of the business. The result also means that higher levels of
commitment also show high levels of customer retention and greater word-of-mouth advertising
for their practices (Small, Jocelyn, and Derek, 2011).

Conclusion

The overall findings from the research are that it reinforces the steps of the financial
planning model. Where planners follow all procedures with every client, from establishing a
relationship, determining the investment goals and expectations, developing and presenting the
plans, and doing the financial monitoring (Mahdi, Omar Rabeea, Erzan and Mahmoud, 2014). In
addition to the support of the six steps of the financial planning model, the research also provides
information that could be used in marketing such as regular communication with the clients and
when they will deliver their services. The study implies that financial practitioners have to learn
the development of the interpersonal aspect of planner-client relationships, as well as the
financial side of the client-relationship (Smyth, Hedley, Magnus, and Elena, 2010; García-
Morales, et al., 2012). The educators should therefore stress the benefits that can be gained from
the workshops or programs that can help them in improving their effective communication with
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clients in their marketing, programming, and materials (Williams and Samset. 2010). The other
implication of the research is that tests a complete model proposed by Morgan and Hunt
(Morgan, R.M. and Hunt, S.D., 1994.). Although the research found the variables on the
relationship outcomes such as propensity to leave a planner-client relationship, willingness to
work through disagreements, and high levels of corporations (Yazici, 2009). The research found
out that communication and trust are all important in the development of relationships and
commitment from the client’s perspective. The variables were however approached from a more
general context (Zehir, Cemal, Yasin Sehitoglu, and Ebru Erdogan. 2012; Zidane, et al., 2016).

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