Is Trust Your Largest Risk?

Trust is inseparable from risk. We expose ourselves to both poor experiences and poor outcomes if we place our trust in the wrong person or organization. But what exactly is trust and how can we lessen the risk?Psychologists think that trust primarily revolves around our first impressions of other people. Academic research shows that our initial impressions of ‘morality’ and ‘competence’ hold the keys to how much or how little we trust someone. Ideally, we want to interact with those that are both willing and able to act with our best intentions in mind.

Trust in the Future

In every aspect of our lives we want to associate with trustworthy people. People that help protect us from undesirable outcomes and those that help us flourish.A key external requirement for trust to be effective is belief in the future. If we have hope and aspirations for the future, these help dampen the inevitable risks that appear along the way. Social researcher, Professor Christian Smith of Notre Dame, says that human beings are hardwired to believe in some organizing truth to help guide our decisions.

The Guise of Trust

Sometimes we attribute trust to someone or an organization because they are well known, large, or perceived to be smart. The “talking heads” that appear on CNBC, Bloomberg, and Fox Business Network each day tend to portray themselves as being highly intelligent. We want to believe that there is a positive relationship between intelligence and good financial outcomesbut, alas, the evidence is weak.It is important to understand that sometimes our perceptions of others may be faulty. We often perceive that others have certain traits that are really just stereotypes. Nonetheless, these perceptions can give rise to emotions that in turn create certain behaviors.

Trusting Others

Historically, one of the most trusted relationships is that between a physician and patient. We disclose personal and sensitive information to our physicians trusting that they will act in our best interest. Oftentimes, we consult a physician when we are in some type of distress. Because we typically know far less about medicine than the physician, we trust the physician to outline both options and dangers in a way that we can comprehend.In much the same manner, one of the vital roles we fulfill for clients is to help alleviate unnecessary anxiety concerning their financial life. It’s nearly impossible to overstate the importance of this; because to the extent clients can relax about the riskiness of markets, the easier it is for them to accept this risk as a necessary input in their financial future.Investors need financial advice that will actually help them. That’s where the element of trust is key. Accepting and acting on advice that is ill-suited or inappropriate can move you in the opposite direction that you want to go. Start there.Related: The Financial Decision You Absolutely Must Get Right