InvestmentsMar 16 2015

Taking client trust to a higher level

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Trust is still a big problem for the financial services sector.

Seven years after the start of the global economic crisis that saw consumer faith dealt arguably the severest blow imaginable, the work to repair a battered image goes on.

Looking back, it seems fair to describe 2014’s contribution to the restoration effort as typically mixed. As ever, the public was presented with a frustrating mix of good intentions and bad behaviour.

While customer-centric initiatives and a raft of tougher regulatory interventions offered promise, scandals such as the bonus-driven manipulation of foreign exchange markets by proprietary traders recalled the kind of self-serving conduct that was central to the 2008 meltdown.

It is little wonder, then, that consumer confidence – as measured by the Centre for Risk, Banking and Financial Services’ Trust index – remains weak. It now stands roughly where it was in late 2009 when the data was first compiled.

Must it always be this way? Can the future hold anything other than a merry-go-round of sporadic dips and slow-burn recoveries?

The Trust index divides financial services providers into seven categories: investment companies, banks, building societies, brokers/advisers, credit card companies, life insurance companies and general insurance companies. Based on the responses obtained from online surveys of thousands of consumers, each category is awarded an index score of between -100 and 100.

Throughout the past five years – a period that has seen 10 rounds of data collection – the overall sector score for consumers’ ratings of their providers has hovered between 20 and 25. This indicates the public’s perception of its experience with the sector as a whole is positive.

But these scores are nothing special and there is an air of weary resignation about them. They hint at indifference on the part of consumers. They denote progress of a very specific kind – a lethargic crawl back from a marked nadir.

Above all, they resonate with ‘forced trust’ – a belief that the status quo will have to suffice in the absence of patently superior alternatives.

The index gives a combined measure of what we call ‘base-level trust’ and ‘higher-level trust’. Base-level trust is about a firm’s competence, honesty, reliability and dependability, while higher-level trust is more concerned with the degree of emotional connection between consumers and their providers.

The current score for base-level trust (around 35) is much greater than that for overall trust, whereas the score for higher-level trust (about 15) is much lower. A basic inference is that consumers regard the sector as fundamentally competent but do not necessarily believe they are forever uppermost in its thoughts.

Regular followers of the index will know that brokers/advisers have traditionally earned by far the best scores, retaining their position as runaway leaders. But even here there is little evidence of genuine headway being made.

In fact, trust in brokers/advisers has endured something of a wobble since the introduction of the RDR. Clients have been re-evaluating service quality in light of more explicit charging, and it is clear that in some cases they have not reached entirely favourable conclusions.

One key question for brokers/advisers is whether they are content merely to gaze down at the likes of banks – now firmly rooted at the bottom of the heap – and to settle for being top of a decidedly stunted pile. In other words, is it possible to truly break away from the pack and to take trust to an altogether different level?

A boutique wealth management firm was recently benchmarked against how respondents in the latest round of data collection perceived their providers in general, particular their brokers/advisers. For each element of trust – overall, base level and higher-level – it returned significantly better approval ratings, reflecting its focus on the drivers of trust and engagement with clients.

Although benchmarking is by no means a perfect science, differences as clear as those uncovered in this instance suggest stasis is not inevitable. They show that consumers still can and do respond to concerted attempts to put their interests first. They indicate that investors and savers, in spite of everything that has happened during the past seven years, have not yet been reduced to a state of incurable apathy. In short, there is still hope.

This could be a point well worth bearing in mind. Consumer trust in the financial services sector may well be recovering, but the pace and extent of the renaissance underscore its innate mediocrity. There is a lot more trust out there, untapped and waiting to be won, if only we would care to find it and earn it.

James Devlin is a professor of financial decision-making at Nottingham University Business School and director of the Centre for Risk, Banking and Financial Services

The trust index: what is it?

The Centre for Risk, Banking and Financial Services has been collecting comprehensive data of consumer perceptions’ of trust in financial services providers since 2005.

Data is collected on an annual basis and is directly comparable back to 2009 – the height of the financial crisis. The information is gathered using a nationally representative sample of more than 2,000 participants. It takes place online, in conjunction with a major market-research company and is collected for seven types of financial providers:

• Banks

• Building societies

• General insurers

• Life insurers

• Investment companies

• Brokers/advisers

• Credit card companies.

The following trust-related measures are collected using measurement scales that have been confirmed as valid and reliable:

• Base-level trust: A belief about firms as to their competence, honesty, reliability and dependability – will it do ‘what it says on the tin’?

• Higher-level trust: The degree of emotional connection between customers and firms – can I trust them to act in my best interests?

• The Trust index: a combined measure of base and higher-level trust.

• System trust: The extent to which consumers believe the regulatory environment and business system provides adequate protection for them.

Source: Centre for Risk Banking and Financial Services

Trust index scores for financial provider types

The highest possible Trust index score is 100, indicating completely positive perceptions, while the lowest is -100, indicating completely negative perceptions. Zero is neutral.