How Managers Cultivate Trust With Investors — And How They Lose It

“Extensive research shows that no amount of competence can compensate for a lack of warmth,” according to Chestnut Advisory Group.

Illustration by II

Illustration by II

Trust is the foundation on which enduring relationships are built — and it may be the single most important factor in increasing and retaining investor capital, according to a new report by Chestnut Advisory Group.

Referring to a concept first introduced by Chris Malone, the founder of Fidelum Partners, the boutique growth strategy consultant outlined trust as a matrix between competence and warmth, and said that the most admired asset managers possess both. What stood out for these managers was that they communicated — and delivered — an overarching message that focused on investors, rather than on a firm’s performance or accolades.

“Extensive research shows that no amount of competence can compensate for a lack of warmth,” the report said. “When competence is high and warmth is low, the emotion evoked is envy… Investors’ best interests are not expected to be important to these managers.”

Managers show warmth in a variety of ways, including making efforts to educate investors through thought leadership with information that could further an investor’s overall objective, or by creating a narrowed target that demonstrates a clear understanding of clients’ goals and proven shared values. In other words, these managers walk the talk.

“What you’re getting when you’re hiring an asset manager is a very high-value contract,” said Amanda Tepper, founder and CEO of Chestnut Advisory Group. “And what you’re getting is a non-tangible item.” In other words, investors can conduct painstaking due diligence, but the partnership is essentially a contract of trust, which is especially valuable during times of turbulence and uncertainty.

Even during periods of lackluster performance, investors were found to retain a competent and trustful manager for up to a year longer than partners that they didn’t trust.


Tepper highlighted firms such as T. Rowe Price, Capital Group, and MFS (none of which are Chestnut clients), who stick to a core message on stability time and again and allude to the validity of their stated values. “You can’t get hired and then go away for three years and then after the markets blow up go, ‘Wow, we need to say something now.’ If you already have that message and you’re repeating it and repeating it, people are really listening during a stressful time and they’re very reassured.”

Cultural values, which are increasingly top of mind for many allocators, are just as crucial.

“When a manager makes false claims regarding common values, they are inevitably and sometimes irreparably eroding trust,” the report stated. “For example, many managers make public claims about diversity on their website, but when a non-diverse group of three senior managers shows up to a final presentation and the managers are unable to speak to the diversity statistics of their firm, they may be perceived as presenting false claims.”

Not surprisingly, the paper cautioned, warmth “can be earned relatively quickly and lost instantly.” Warmth — and by extension trust — can be eroded by underdelivering on a key expectation. “Investors can be disappointed in many ways, such as [by] the finding of an accounting irregularity by a regulator, a botched trade settlement, or a clearly inaccurate response to an investor query,” the report stated.

Chestnut also found that most managers positioned their entire messaging around competence, focusing on the “what” and “how,” with details centered around investment styles and asset classes, bios of senior management, or current investments and the themes that drive them. Managers, however, can fully control their cultivation of trust, the report noted. The “whats” of an investor’s offerings and the “hows” in which they execute do matter, but the most important part that many managers miss is the “why.”

“The ‘why’ isn’t about you,” Tepper said. “It’s about the client. What do they care about, and why should they trust you?”