Abstract
This paper focuses on the investor-advisor relation, looking at financial advisory as a fiduciary service. Consistently with the economic literature on the Trust Game, we formalize trust between financial advisors and clients as driven by a combination of two traditional motives – a norm to trust and anticipated reciprocation. We use related literature and insights from the recently introduced European Markets in Financial Instruments Directive 2 (MiFID 2) to define an original survey to estimate a structural equation model of trust formation, where trust and its two main motives are described as latent variables. Besides this methodological contribution, we test the validity of the hypothesized structural relation and explore whether specific features of financial advisors are likely to lead to different trust-formation processes. We find that the professional framing (tied versus bank advisors) and the maturity (new entrants versus incumbents) of financial advisors do indeed support different trust-formation processes. We conclude by exploring how these processes may be differently affected by the new regulation and discussing implications for the financial advisory industry.
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