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The Trust Mandate

The behavioural science behind how asset managers REALLY win and keep clients

By Herman Brodie and Klaus Harnack

Hardback £75.00 / $99.00
eBook £55.00 / $75.00
Paperback £24.99 / $29.99
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The Trust Mandate

The behavioural science behind how asset managers REALLY win and keep clients

By Herman Brodie and Klaus Harnack

Jacket text

This groundbreaking new book answers an essential question: why is it that a fund client selects, or an investment consultant recommends, one asset manager over another when the two are, on paper at least, very similar? Also, why is it that some asset managers maintain their mandates during difficult periods in the cycle and others don’t, even though their performances are identical?
 
Authors Herman Brodie and Klaus Harnack investigated the drivers of these selection decisions and uncovered that so-called ‘soft’ factors play the primary role – even more so for consultants than for end-clients. They also discovered that these soft factors are essentially the means clients use to judge an asset manager’s benevolent intentions, one of the two dimensions of the universal human evaluation more commonly known as trust.

Backed by compelling data and research from multiple disciplines, The Trust Mandate breaks open the science of trust for asset managers, revealing the systematic steps clients take in their search for evidence of good intentions – the essential, but often missing, component in business relationships. It also shows how trusted managers are able to win more clients, keep them longer, merit good recommendations, allowed to take more risks, and justify higher fees.

The clients of trusted managers enjoy reduced anxiety, earn higher long-run returns, and avoid costly and pointless transitions from firm to firm. So high-trust relationships are a genuine win-win situation. Yet the task of initiating and nurturing them falls squarely on the service provider. Asset managers must learn to convey their good intentions. The Trust Mandate shows why – and how – in unprecedented detail.

About the author

Herman Brodie spent over a decade in investment banking roles in London, Paris and in Frankfurt. In 2000 he co-founded his first company, Cognitrend, a consultancy to advise financial institutions on the utilisation of behavioural finance research. He has pursued this goal since 2013 as Managing Director of Prospecta Limited. Brodie is a co-author and lecturer of 'A Practical History of Financial Markets', a course aimed at investment professionals,
developed for the Edinburgh Business School's MBA programme, and has penned numerous articles on behavioural finance.

About the author

Klaus Harnack received his Ph.D. in social psychology and motivation from the University of Konstanz. He is currently lecturer and academic counsellor for work and organisational psychology at the University of Muenster. Besides his academic work, he provides interdisciplinary knowledge transfer for a wide range of professionals. His utilises psychological insights and strategies to support professionals in their decision-making, negotiation and conflict management skills. He is an author and scientific columnist.

Reviews

“A book I highly recommend”

Larry Swedroe

“A fascinating subject … I recommend people get hold of this book and read it”

Martin Bamford

One of the Ten Best Business Books of 2018 for Financial Advisors

WealthManagement.com

Too many fund managers ooze competence but lack warmth. Big watches, showing off superior intelligence and bragging about past winning trades put clients off. Instead, we should learn from the firefighters, who are heroic and trustworthy. I have known Herman Brodie for several years, having attended his ground breaking courses on behavioural finance. In this book, he doesn’t disappoint… Genuinely a worthwhile read for investment professionals. And if they all read it, pitch documents would no longer be so bland.

Charles Morris, Chief Investment Officer at Newscape Capital Group

Media coverage

From David Finley Blog:

Backed by compelling data and research from multiple disciplines, The Trust Mandate breaks open the science of trust for asset managers, revealing the systematic steps clients take in their search for evidence of good intentions—the essential, but often missing component in business relationships. It also shows how trusted managers are able to win more clients… Read more »

Read More…

From International Adviser:

Clients in need of financial advice have a lot of choice when it comes to deciding which firm or adviser to use. Companies spend lots of money on advertising to convince people that their particular expertise is the best fit for their needs. But with all the marketing noise, is there one particular element that… Read more »

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From Proactive Advisor Magazine:

A recent book titled “The Trust Mandate” by Herman Brodie and Klaus Harnack sheds light on this question through an in-depth analysis of investment manager selection by institutions and pension plan sponsors. Citing comprehensive studies, surveys, and data from both U.K. and U.S. plan sponsors, Brodie and Harnack point out that while past performance is… Read more »

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From The Evidence-Based Investor:

Herman Brodie is a specialist expert in behavioural economics. Formerly an algorithmic trader for an investment bank, he became fascinated by the predictable aspects of human behaviour and how that affects investing and the markets. Herman has written a book with Klaus Harnack called The Trust Mandate, which despite being aimed at asset managers, contains… Read more »

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From Wealth Management.com:

This professional book attempts to answer a question that has vexed every advisor: why does a client choose one asset manager over another, especially when the two are, on paper at least, almost indistinguishable? Yet, distinguish is what clients do every time they make a decision. In The Trust Mandate, the authors investigate the drivers… Read more »

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From Traders Magazine Italia:

Book mentions for both The Trust Mandate and The Best Investment Writing vol 2.

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From ETF.com:

In the face of such information, why do plan sponsors engage the services of consultants when the evidence clearly shows they do not add value with their recommendations? In fact, they subtract it. Answering that question is the subject of “The Trust Mandate,” a book I highly recommend.

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From Advisor Perspectives:

According to a new book, The Trust Mandate, by Herman Brodie and Klaus Harnack, this is a serious problem. Brodie and Harnack believe projecting competence can be a curse. The authors believe warmth conveys a feeling the advisor will act in the best interest of the client. Yet, in their efforts to be perceived as… Read more »

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From MoneyLife Radio:

“High trust relationships bring advantages for advisors… but also for the client.”

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From Market Watch:

Investors want money managers to be expert with communication as well as portfolio allocation … Financial service providers, if they want to be trusted, must recognize that clients want to know how much they care before they’ll care how much they know. Herman Brodie is the author, with Klaus Harnack, of The Trust Mandate: The… Read more »

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From Seeking Alpha:

The authors offer a range of suggestions, from the fragrance of hand cleansers in the washrooms of the asset manager’s offices to the trade-off between warmth and competence where “one additional unit of warmth, so to speak, will bring providers closer to a high-trust relationship than one additional unit of competence.”

Read More…

Contents

About the Authors
Introduction

1 - What Drives Asset Flows?
Follow the money
Fly on the wall
A detour: can selectors pick top-performing managers?
Summary

2 - Soft Factors in Asset Manager Selection
Soft factors in flow of funds data
Soft factors in survey responses
What do selectors want?
What do selectors (really) want?
Summary

3 - The Role of Trust in Economic Relationships
The logic of good intentions
The definition of trust
Social capital
Summary

4 - Types of Trust
System trust
Role trust
Interpersonal trust
The interaction between the three types of trust
Summary

5 - Warmth and Competence
Dual dimensions of impression formation
The evolutionary origins of warmth and competence
Stereotypes, emotions, and behaviour
Warmth and competence in social perceptions
In the kingdom of the cold, the lukewarm is king
Summary

6 - Lessons from the Most Trusted Professions
A worldwide ranking of trust in professions
Trust in patient-doctor relationships
Money managers should learn from doctors
Summary

7 - The Foundations of Interpersonal Trust
The love drug
Trust by physical cues
Trust by social cues
Manufactured trust
Summary

8 - The Curse of Competence
Trust in bankers hits new lows
The warmth-competence trade-off
A worthwhile trade
Stop trying to appear competent
Concede competence strategically
Detour: A promotional video
Summary

9 - Developing Interpersonal Trust
Value congruence
Caring
Vulnerability
Psychological distance and trust
Trust repair
Summary

10 - The Missing 'It'
What we found out on the way

Annex 1
Trust games
Trust around the world



Published: 09/04/2018
Edition: 1st
Pages: 238
Formats: hardback - ISBN 9780857196439
ebook - ISBN 9780857196446
paperback - ISBN 9780857197627
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