Why is restoring consumer confidence and trust in financial services important? We’ll be exploring what explains the current low levels of confidence and trust, and what can be done about it.
Why do we need to restore consumer confidence and trust?
Restoring confidence and trust should:
- Lead to better consumer-outcomes.
- Improve consumers’ willingness to engage with financial services which is critical for meeting public policy goals such as encouraging retirement savings.
- Help mitigate externality costs (low levels of confidence in pensions encouraged buy-to-let investment pushing up house price-earnings ratios in certain UK regions).
- Lead to more efficient, innovative markets (confident consumers are more willing to shop around and put pressure on established providers, and try out innovative providers and products).
For firms, restoring confidence and trust generates profitable long term relationships with customers. Finally, there is political pressure on the industry. The responsible capitalism or good capitalism agenda is gaining traction even amongst politicians on the right.
How far back are we starting?
There is compelling survey data which suggests we are starting far back in terms of consumer confidence and trust in financial services.
Recent research conducted by Edelman Insights across 28 countries found that 54 per cent of consumers surveyed trusted financial services – financial services was the least trusted of the major business sectors. The figure for the UK was 45 per cent.
The EU Consumer Market Scoreboard surveys attitudes to over 40 different business sectors across all the EU member states and within each member state. In the UK, pensions and investments, and banking consistently score in the bottom half or lower quartile in terms of consumer trust and satisfaction. However, sectors such as car insurance score comparatively well which may be due to the fact that consumers make repeat purchases so are familiar with them.
A survey recently undertaken by 3R Insights, in conjunction with Opinium, sheds more light on the factors that comprise trustworthiness. This survey sought views on how consumers perceived industry leaders most notably Chief Executive Officers (CEOs) and board directors. The results were damning. Overwhelmingly, consumers surveyed did not believe industry leaders cared about the value for money or the service their firm provided. They had little confidence leaders intended to treat them fairly, or encouraged an ethical culture in their firm. There was a clear age effect. Older respondents were significantly more critical than their younger counterparts.
The three most common explanations for low levels of confidence and trust given were: ‘excessive pay and bonuses’; the ‘public paid the price while directors got off scott free’, and ‘excessive fees and charges’. Age was again a factor with older respondents much more scathing. This was interesting as we had thought that respondents from the ‘Occupy Generation’ would have been much more critical than older respondents.
What explains the low levels of confidence and trust, and what can we do about it?
The main causal factors we identify are:
- The intrinsic nature of financial services.
- The litany of miss-selling scandals which have left a legacy of mistrust.
- Consumers’ perception that industry leaders don’t care about treating customers fairly or encouraging an ethical culture in the firms they run.
Restoring confidence and trust means convincing consumers that previous wrongs have been put right. But we must also prevent a repeat of large scale miss-selling scandals, and reassure consumers that industry leaders have their interests at heart.
Regulation clearly has an important role to play here. Ultimately, it comes down to:
- Improved governance, conduct and culture.
- Firms manufacturing and selling much better value, quality products and services.
- Boards of firms getting an unmediated view of how the firm treats its customers (and how the firm is really perceived by customers).
Industry leaders have much on their plate, not least Brexit. But, superficial corporate make-overs won’t cut it. Improvements will have to be made and be seen to be made. It needs a change in mind-set amongst board members towards retail customers.
No doubt, there has been progress but it has been slow. To be blunt, industry leaders have much to do to convince consumers that they understand their needs and care as much about them as they do about their bonuses.
 EU Consumer Market Scoreboard, 2016 Edition, see p185, http://ec.europa.eu/consumers/consumer_evidence/consumer_scoreboards/12_edition/index_en.htm
 The author is a director of 3R Insights, for full results and details of methodology, see http://3r-insights.com/
 Trustworthiness is the quality that firms must possess to gain the trust of consumers
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