How do you Know When to Trust Someone

by Neal Frankle, CFP ®

It’s not easy to know when to trust someone. When it comes to your financial affairs, the importance of this can’t be underestimated.

Can you go with your gut feeling? Maybe. But plenty of people have relied on their feelings and gotten taken to the cleaners and lost money as a result.

Should you have a “healthy mistrust” of everyone when it comes to your cash? I don’t think that’s the way to go either. That’s because you don’t know what you don’t know. You might be talking to someone who has some excellent investmnent ideas for you. But if you approach people from the standpoint of mistrusting them, you might walk away from good advice. So where is the balance? How do you really know when to trust someone? My experience tells me there are 7 considerations that can help you decide.

1. Expertise

Does the person you are speaking with have expertise? Has he or she demonstrated success in the particular subject you are talking about?

You might trust your Uncle Barney the retired dentist because he’s a wonderful man, smart and has created a great deal of wealth. But does he have training and expertise in financial matters? He might have a great deal of money but does that mean he made bank in his dental practice or does it mean he knows how to invest? And even if he is a great investor, is he the same kind of investor as you?

In short, even if you trust the person on a personal level it doesn’t mean you should place your trust in this person when it comes to your financial future.

2. Respect

Expertise is a prerequisite of course but that isn’t enough. Do you respect this person? Why or why not? Does she treat others well? Does she respect others?

You may be able to get good financial council from a person you don’t respect but you won’t trust someone you don’t respect. Sooner or later you’re going to take your marbles and go home. It’s no fun to play with people you don’t respect. Why even get in a business relationship with such individuals?

3. References

Anyone can provide references of course but it still makes sense to check. I suggest you interview other people who have worked with this person but don’t stop there. It’s critical to get professional references as well. Speak with a few attorneys and accountants. Ask for references from professional organizations and oversight boards.

If you want extra credit (and you should) ask for the personal credit report of the person you are about to deal with. If you are willing to trust this person with your life savings, they should trust you with their credit report. A good credit report demonstrates some level of financial expertise. And how they answer your request will tell you a lot about how much respect they have for you. Don’t overlook this request.

4. Questions

A great way to know when you can trust someone or not is by the kinds of questions they ask – or don’t ask. A trustworthy person should ask you lots of questions rather than be busy telling you how great he or she is. Are the questions honest or manipulative? The kinds of questions people ask really tell you how interested they are in getting to know who you are and what you want to do.

Pay attention to the follow up questions as well. Sometimes people will ask you questions because it’s on their list – but they won’t really listen to what you are saying. You can tell if someone is really listening by the kinds of follow up questions they ask.

5. Scope

Before you place you trust in someone, consider the scope of what they can do for you. If you are looking for financial planning advice for example, don’t ask an insurance agent. They might be the best people on the planet. But if they only sell life insurance that means they don’t cover the entire scope of your financial needs.

6. Speed

I judge if someone is trustworthy or not by the speed they ask me to make a decision. If I feel any pressure at all, my answer is always “no”. If you feel pressure, tell the person you are uncomfortable and see what the response is. If you still feel pressure to make a decision, my suggestion is to walk away.

7. Likable

At the end of the day, you have to like someone in order to trust them. My experience tells me this is partially instinctual. We have the “like/dislike” instinct to tell us at a gut level if we are safe or not. I hope that you don’t rely solely on this measure but it is important.

If you don’t like someone, respect your instincts and walk away. But just because you do like someone, it doesn’t mean you’ve done enough due diligence to bestow your trust upon them.

Trust is important because we are social beings. The more we rely on others the more careful we need to be. I have used these criteria to determine if I should trust someone or not and they have helped me avoid catastrophic mistakes.

How do you determine when to trust someone?


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{ 7 comments… read them below or add one }

anand December 16, 2012 at 9:44 PM

Trust your instincts and don’t give a second thought about walking away.


Neal Frankle December 18, 2012 at 5:16 AM

I like it Anand. Good suggestion.


chuck December 8, 2012 at 9:11 PM

Great article, Neal.


Tushar @ Everything Finance December 3, 2012 at 8:08 PM

I think it’s important to be open minded but be what is called a ‘sophisticated client’ – listen to what people have to say, then do your own research. If you don’t, you mind end up taking the wrong advice. You don’t want to blame anybody else for giving you advice when financial matters are very personal.


Neal Frankle December 3, 2012 at 9:52 PM

Very well said Tushar. I like the personal responsibility end of this statement. Nice.


Jerry December 3, 2012 at 2:33 AM

Getting a referral from someone I trust about someone else is my insurance I’m going with the right person. It usually leads to good results.


Neal Frankle December 3, 2012 at 2:41 AM

Agreed. That’s usually a good place to start. My experience has also been good. The only point is, while the person may be trustworthy does it also mean they are qualified?


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