Taking client trust to a higher level

This article is part of
Spring Investment Monitor - March 2015

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.

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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.