Advisers lose out in client trust ratings

There is little merit in attempting to soften the blow when the potential implications are so serious. The inescapable fact is that advisers are losing the trust of consumers, the very people whose interests they should have at heart.

This message comes courtesy of consumers themselves, via the data gathered for Nottingham University Business School’s Trust and Fairness Index. At least once a year since 2009 we have produced the index to gauge client perceptions of trustworthiness and fairness, and on each occasion advisers and brokers have earned by far the highest scores – until now.

The index divides providers into seven categories – advisers/brokers, banks, building societies, general insurers, life insurers, investment companies and credit card firms – and awards each a score based on responses obtained from online surveys.

Each section receives an index score of between -100 and 100, with scores below zero indicating a perceived lack of trustworthiness/fairness and scores above zero indicating increasing trustworthiness/fairness.

In early 2010 the score for survey respondents’ perceptions of their own advisers and brokers was comfortably above 25. By stark contrast, all other providers scored negatively. With the financial crisis still raging and the industry in general on the back foot, it appeared consumers valued the personal touch that advisers have traditionally provided.

Fast-forward to the present day and we find a quite different picture. A lead that once looked unassailable has been not only dramatically narrowed, but completely eroded. Building societies are now top of the pile. The broker/adviser category is unique in plotting a downward trajectory, with its score plummeting to an all-time low of 11.

Does this mean that building societies, insurers and credit card companies have recently hit upon some sort of magical, trust-engendering formula of which advisers remain blissfully unaware?

The incremental nature of their gains would suggest not. It is more likely the answer lies not in what others are doing right, but in what advisers are doing wrong.

How this downfall has come about in such a comparatively short time is bound to be a matter of pure speculation, at least in the absence of further research. But it is perhaps worth noting that the slide can be traced back roughly three years – a period that neatly coincides with the existence of the RDR.

We first remarked in 2013 that the RDR might be having a negative impact on consumer perceptions, with more explicit charging encouraging clients to re-evaluate service. We posited that in some cases greater clarity might bring about a spell of retrospective resentment, and expressed the hope that this would prove short-lived.

The optimism of the latter sentiment is becoming ever clearer. It may well be that our data offers a reflection of more and more clients viewing their adviser relationships through the prism of RDR and reaching less-than-favourable conclusions. In the academic world the decline of the past six months would be deemed significant; in the real world it might reasonably be described as dramatic, if not downright alarming.

It will be interesting to see whether the deterioration endures. It will also be intriguing to see whether brokers and advisers find ways to halt and reverse it – or whether they feel compelled to muster any sort of meaningful response.

After all, although we know from related studies that some have taken trust to a completely different level, many advisers have historically been content simply to sit on top of a pretty unimpressive pile in which the majority of providers even now earn negative scores.

Complacency and inertia have their inherent attractions, but it is hard to make a case for them being in the spirit of putting customers’ interests first.

The unfortunate truth, as several years of data have illustrated, is that across the whole spectrum of providers there persists a disappointing and often damaging reliance on edicts from above – RDR being an obvious example – and an unshakable faith in consumer indifference.

As advisers might now be discovering, these are assumptions that can prove perilously misguided over the longer term.

James Devlin is a professor at Nottingham University Business School and director of its Centre for Risk, Banking and Financial Services, which produces the Trust and Fairness Index

TRUST AND FAIRNESS INDEX: WHAT IS IT?

Levels of trust

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 – 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.

Trustworthiness – based on the image and reputation of financial institutions.

System trust - the extent to which consumers believe that the regulatory environment and business system provides adequate protection for them.

Source: Trust and Fairness Index, Nottingham University Business School

SURVEY FINDINGS: TRUST RATINGS AND INSTITUTIONS

Ratings of trust in the financial services sector continue their path of gradual improvement. The good news for the sector is that overall ratings of trust are now higher than at any point during the period covered by the current online data collection approach (since 2009).

This development will, no doubt, be roundly welcomed by the sector. However, the overall rating has not quite broken into positive territory, so while promising the findings from the data are not a ringing endorsement of the sector.

Perhaps somewhat surprisingly, brokers and advisers have been knocked off the number one spot by building societies for overall ratings of trust. In previous surveys, their lead appeared practically unassailable, but in the current wave the gap with other types of provider has also narrowed.

Most other types of institution saw their ratings increase, with a particular surge in trust levels for building societies, insurers and investment companies. Banks remain very much at the bottom of the ratings and showed less improvement than other provider types.