Rebuilding Consumer Trust in Financial Advice

Overview 1
Catalyst 1
Summary 1
Methodology 2
Table of Contents 3
Table of figures 4
Table of tables 5
Introduction: Trust in the context of Financial Services 6
Defining the intangible: what is trust? 6
Datamonitor's Trust Process attempts to capture both the static and the dynamic elements of consumer trust 7
An improved level of trust can directly benefit customer acquisition, retention and overall performance 9
Consumers trust advisors much less than they trust any other financial institutions 10
Trust is manifested in the market through a variety of means 10
Once lost, trust is hard to recover but is relative to the distrust felt for other organizations 10
Long queues outside the branches were evidence of a loss of trust in Northern Rock 11
However trust is a fickle emotion, subject to the relative distrust of others 12
The collapse of Fannie Mae and Freddie Mac is another example of the fallout from lost trust 13
A wider range of stakeholders must take responsibility for rebuilding trust and this is the real challenge for the industry 13
Industry bodies must accept their own responsibilities and avoid passing the buck 15
The Future Decoded 17
Trend: Financial advisors suffer the lowest level of trust in financial services 17
Banks can exploit this trend to attract customers seeking advice 18
There is an opportunity for the supermarkets to gain market share from the established banks and financial advisors 18
Other institutions enjoy lower levels of trust among the public 18
Insight: Trust in financial advisors varies by region 18
Trend: Trust in financial advisors is correlated with trust in the banking industry 20
Insight: The more trust in the banking industry has fallen, the less willing consumers are to pay for advice 21
Planned changes to advisor remuneration in the UK present a further challenge 22
Trend: Consumers trust their own bank considerably more than the banking industry as a whole 23
Insight: With a few exceptions, trust in banks not fallen greatly since the onset of the credit crunch 24
Trend: Consumer loyalty is influenced by trust 26
Dependence on consumer apathy and inertia has led financial institutions to become complacent 26
Insight: The willingness of consumers to shop around is affected by levels of trust with their primary bank 26
Insight: Where customers have lost trust in their bank, they are likely to use other sources of advice 27
Trend: Consumers are less willing to buy financial products purely on the basis of price than pre-credit crunch 29
Trust transcends price in the banking equation 29
Insight: Where levels of trust are low, consumers are less likely to focus on price as a key determinant of product choice 32
Trend: More knowledgeable and sophisticated consumers are more active in the market 33
Insight: Trust in banks drives willingness to seek professional advice 34
Insight: Consumers who are well-informed about financial matters tend to have more trust in the industry than those who are less confident 36
Insight: Financial confidence leads consumers to look beyond their primary bank for advice 37
Action Points 39
Action point: Advisors need to renew their efforts to improve their standing and reputation among the public 39
Proposed measures to reform the market for advice in the UK can serve as a template for other countries 39
Action point: Banks should stop marketing themselves purely on a commodity basis, and instead focus on building emotional ties by offering wide-ranging advice 40
First National Bank of South Africa has launched a website offering advice and information on a range of financial and economic issues 40
NatWest introduces a campaign to improve the financial knowledge of UK consumers 42
Action point: Financial advice should be widened in scope to address consumers' lifestyles in the whole 42
Financial advisors should strengthen relationships with their clients 42
Providers should consider tie-ups with aggregator sites 43
APPENDIX 44
Supplementary data 44
Definitions 51
Independent Financial Advisor (IFA) 51
Methodology 51
Further reading 52
Ask the analyst 52
Datamonitor consulting 53
Disclaimer 53
List of Tables
Table 1: Net trust in financial institutions 44
Table 2: Proportion who trust financial advisors and brokers 44
Table 3: Proportion who will not use paid-for advice 44
Table 4: Net trust in financial advisors and brokers, by country 45
Table 5: Net likelihood to shop around more for financial services and products than before the downturn, by country 46
Table 6: Net trust in primary bank and banking industry, by country 47
Table 7: Net agreement that trust in primary bank and banking industry has fallen since credit crunch, by country 48
Table 8: Proportion who will investigate products elsewhere, open saving account elsewhere, research whether money is safe, or carry on behaving as before 48
Table 9: Proportion who will go to primary bank for advice on savings or for other financial products 49
Table 10: Agreement with looking for cheapest/ highest return products, or financial stability 49
Table 11: Proportion who look for cheapest/ highest return product 49
Table 12: Proportion who will pay more into savings, pay more into pension, invest more for long-term 50
Table 13: Proportion who seek professional advice prior to decisions 50
Table 14: Relationship between keeping up with financial news and trust in banking industry 50
Table 15: Relationship between keeping up with financial news and shopping around for financial products, investigating products from other banks, and seeking professional advice 51
List of Figures
Figure 1: The Datamonitor Trust Process 7
Figure 2: Increased trust helps to build up customer acquisition/retention and improve performance 9
Figure 3: Customers queuing outside Northern Rock as they lose their trust in the bank's business model 12
Figure 4: Consumers globally feel that government and business share responsibility for the crisis 13
Figure 5: 53% of consumers globally feel that government should be held most responsible for solving the financial credit crisis 14
Figure 6: 64% of Indonesian consumers believe government and regulators are most responsible for solving the financial credit crisis. 15
Figure 7: Trust in advisors is very low compared to other institutions 17
Figure 8: BRIC consumers trust advisors more than European consumers do 19
Figure 9: European customers least likely to shop around 20
Figure 10: Trust in advisors moves hand-in-hand with trust in banks 21
Figure 11: The more trust has fallen, the less willing consumers are to pay for advice 22
Figure 12: Consumers have more trust in their own bank than in the industry overall 23
Figure 13: In general consumers do not feel that their level of trust has declined since the credit crunch 25
Figure 14: Declining trust with primary bank affects prompts 'disloyal' behavior 27
Figure 15: Trust in primary bank drives willing to obtain advice there 28
Figure 16: The high-profile collapse of banks such as Icesave contributed to a change in consumer priorities 30
Figure 17: Wish for stability outweighs desire for good price 31
Figure 18: Recent Nationwide advertising campaign emphasizing its trustworthy values 32
Figure 19: As trust declines, so does importance of price 33
Figure 20: Propensity to seek advice drives future activity 34
Figure 21: Propensity to seek advice is driven by trust in industry 35
Figure 22: Trust in banks is driven by financial sophistication 36
Figure 23: Knowledge drives search for products and advice 37
Figure 24: First National Bank of South Africa is attempting to increase customer engagement thorough its 'How can we help you?' initiative 41