Trust is the grease that lubricates both business and personal relationships. Trust between employers and employees, for example, facilities better outcomes by improving communication, raising individual and group performance, reducing conflict, and providing greater satisfaction.

There are also downsides, especially too much trust. It can lead us to see what we want to see—a form of confirmation bias—that can adversely affect our judgment. One manifestation of this is the tendency to trust people who are similar to us. For instance, the Bernie Madoff fraud disproportionately involved Jewish individuals and institutions that trusted Madoff largely based on his connections in the Jewish community and his Wall Street reputation, ignoring the impossible investment promise of steady returns regardless of the market environment.

Avoiding the Pitfalls of Trust

While it is essential to all forms of relationships, too much of it can be problematic in professional relationships, like employer/employee, customer/vendor and, yes, even client/investment advisor. Here are some ideas for ensuring that trust doesn’t become a business risk.

• Know yourself. Individuals, whether by nature or by experience, have different levels of personal predisposition to trusting others. Ask yourself, do you trust too much and too readily? The answer may signal how much you need to do to manage your instincts.
• Being mistrustful is not a better starting point. Mistrustful people assume the worse, leaving them reluctant to fully reciprocate over worries that they may be trusting the wrong people. They make fewer mistakes, but also have fewer positive experiences.
• Begin relationships with small acts of faith. This sends a positive message while limiting the disappointment or damage arising from any betrayal.
• Be vigilant about looking for signs of abuse of trust. The decision to trust is not a set-it-and-forget-it exercise. This means conducting regular audits, looking for red flags and listening to complaints from other employees.
• Punish abuses of trust, firmly and consistently. Be ready to disengage, if necessary.
• Never assign one employee complete oversight of any particular function. That’s asking for trouble, especially if he or she never takes a vacation or his or her work goes unaudited.

Though life would be so much more rewarding if we could trust unconditionally, professional responsibility dictates that we manage in how the world is, not how we wish it would be.

Please reference disclosures: https://blog.americanportfolios.com/disclosures/