Let’s be frank: trust in financial services is low.
Few industries have remained unscathed by the 2008 global financial crisis but financial services - the banking sector in particular - have been the worst hit.
However, even before the financial crisis the reputation of some institutions wasn’t too rosy. Even at the start of the millennium, in the aftermath of the accounting scandal at Enron and the burst dotcom bubble, managerial pay discussions that broke out initially in the United States and later in Europe, proved to be particularly vehement.
Then there were the financial scandals, accounting fraud and dishonest behaviour of individual analysts which became ever more prevalent (and that came after the Nick Leeson scandal at Barings in 1995).
Low consumer trust
Unsurprisingly, consumer trust has plummeted and we’ve seen increased regulation to clamp down on the less transparent investment banking practices. Unfortunately for many firms – even if squeaky clean - the public image of an industry can affect a company’s reputation, for better or worse. Indeed, many of the companies seen as responsible for contributing to the financial crisis, such as RBS, AIG, and Goldman Sachs, are still struggling to regain the public’s trust.
At the other end of the spectrum, technology companies are seen more favourably by consumers.
Why is this? Well, it may have to do with how we use their products. The products and services provided by companies like Apple claim to make your life easier, more productive, and fun.
Government, energy and financial services companies, on the other hand, offer relatively boring – yet necessary – products; rarely does one hear the phrase, “Gosh, I’m delighted with my new home and contents insurance!”
Low trust is primarily a reputational issue: consumers believe that firms will consistently choose to act in the interest of the company rather than in the interests of their customers. Of course, financial services firms are still trusted in some areas – particularly around safety and security (ok, let’s not mention this week’s Tesco Bank issue) – but there remain trust gaps that must be addressed.
How can financial services companies rebuild their reputations?
As outlined in the FSCS Mind the Gap Report last year, the financial services industry needs to tackle distrust and it still has a particularly poor reputation with regards to fair pay. For example, according to an Economic Policy Institute report, between 1978 and 2015 inflation-adjusted US CEO pay increased by almost 1,000% while typical American workers saw a pay raise of just 10% during that same period.
Financial services firms are perceived to be offering huge bonuses to senior execs or fund managers regardless of performance, whilst keeping salaries for its regular staff low. Consumers do not believe that firms’ interests are aligned with their own and are suspicious of banks’ and fund managers’ claims on pay.
Also, financial services businesses need to act transparently in their customers’ best interests by offering the same deals to both new and long-term customers. Credit card companies in particular, are notorious for offering deals significantly better for new rather than existing customers to get them on board, rather than rewarding loyalty. Financial services need to start telling customers when they would be better off with another product as a matter of course.
A further trust or knowledge gap relates to receiving compensation for losses incurred because of poor financial advice. More consumers are aware today they can try and resolve their grievances by appealing to the Financial Ombudsman Service (FOS).
But financial institutions can still do more in terms of improving their customer service to either resolve the situation with their customers before they resort to this measure, as well as increasing awareness of the options open to them.
Increased awareness and transparency needs to come from the top down. Every financial services CEO should an active participant in cleaning up the industry and take a certain amount of responsibility for the ‘poor crisis management’ that occurred during and after the financial crisis.
The role of public relations
More and more, senior management is seeing the value and investing in public relations – and public affairs for that matter – with many firms now using social media to play an active role in influencing opinion amongst all its stakeholders, be they customers, politicians, the media or shareholders.
There is also a far greater awareness and engagement within corporate governance, as businesses seek to put their own house in order. Similarly, businesses need to work with government to ensure the right financial regulations are developed and adhered to.
However, this is not to say that the sector is not already active in doing these things to improve the reputation of financial services, nor that there are not many financial businesses that have excellent reputations. The online bank First Direct regularly wins awards for the best customer service in Britain and is praised for its empathy and approach to problem resolution.
Similarly, in the US The Harris Poll this year, many Americans believe the financial services industry is making a slow but steady improvement in its reputation since 2009 and companies like Warren Buffet’s Berkshire Hathaway and ETF provider Vanguard rate highly for corporate reputation across all industries.
So, out of the murky depths of mistrust and poor practices, there is an increasing awareness, sense of responsibility and conscious activity within the entire financial services sector which is resulting in a slow progression to regain the confidence and trust that has been missing for so long.