Both risk-free investments and risk premiums are a thing of the past. With risk-free returns close to zero and risk-premiums historically at 3% to 3.5%, fund managers have next to no chance to generate 4% return or more within an acceptable risk framework.

But the repercussions of the 2008 crisis and the ongoing sovereign debt crisis in Europe make themselves felt not only in a harsh investment climate, but also in a significant loss of trust among investors.

The 2012 Edelman Trust Barometer saw an unprecedented decline in overall trust. It recorded a 50% increase in the number of countries where less than half the population says it trusts the government.

According to a Pew Research Center survey conducted among US citizens in 2010, trust in government started its downward trend during the 2008 financial crisis.

But distrust doesn’t stop there. Only 25% and 22% of those surveyed by Pew say large corporations and financial institutions respectively have a positive effect on life in the US. In an industry-specific survey, the 2012 Edelman Barometer finds that banks and financial services are least trusted.

YET, TRUSTWORTHY FINANCIAL ADVICE is in greater demand than ever as the comfortable security of reliable state pensions – if it ever existed – makes way for defined contribution pension plans and responsibility for reliable retirement income is shifted onto individual savers’ shoulders.

While it is my conviction that banks exist to take risk and, occasionally, sell it, I share some of the criticism leveled at the financial industry. We do not need banks who in the sole interest of profits re-package and re-sell risky assets, potentially even to clients who have no understanding of the gamble they take. Such business models, I believe, are key to plummeting levels of trust.

Yet, the current lack of good faith is no reason to go sulking in a corner, but an opportunity for the financial industry to prove itself a trustworthy partner not only in good, but particularly in bad times.

One of the key experiences in my 20 year career in the financial industry were the years 1995 to 2001. I was responsible for a pension fund’s investment strategy and in the bull markets of those days, it was next to impossible to lose money. As we all know, that is no longer the case.

OVER THE LAST FOUR  YEARS, it was extremely difficult to generate profits promised in a world that ceased to exist. Generating returns will remain difficult and guarantees are hardly a viable solution as they are not only expensive, but also unduly restrictive to the fund manager’s investment approach.

Masters of the Universe are a rare species and we have to admit openly to unpleasant truths if we are serious about regaining or simply retaining the trust of partners and clients. In an adverse environment, we sometimes have to accept the suboptimal if it best suits the client’s risk tolerance.

While risk tolerances differ – Anglo-American societies tend to accept bad luck with a shrug of the shoulders whereas European countries like Germany place much greater emphasis on downside protection –, an open communication of the suboptimal is often more in a client’s interest than accepting excessive risk.

Trust levels may drop momentarily, but in the long run, I am bullish on trust and transparency because in an adverse investing climate, there is no other option to maintain and grow a working long-term relationship with clients and partners.