Rebuilding Consumer Trust in Financial Advice

Table of Contents

OVERVIEW

• Catalyst
• Summary
• Methodology

INTRODUCTION: TRUST IN THE CONTEXT OF FINANCIAL SERVICES

• Defining the intangible: what is trust?
  • Datamonitor' s Trust Process attempts to capture both the static and the dynamic elements of consumer trust
• An improved level of trust can directly benefit customer acquisition, retention and overall performance
• Consumers trust advisors much less than they trust any other financial institutions
• Trust is manifested in the market through a variety of means
• Once lost, trust is hard to recover but is relative to the distrust felt for other organizations
  • Long queues outside the branches were evidence of a loss of trust in Northern Rock
  • The collapse of Fannie Mae and Freddie Mac is another example of the fallout from lost trust
• A wider range of stakeholders must take responsibility for rebuilding trust and this is the real challenge for the industry
• Industry bodies must accept their own responsibilities and avoid passing the buck

THE FUTURE DECODED

• Trend: Financial advisors suffer the lowest level of trust in financial services
  • Banks can exploit this trend to attract customers seeking advice
  • There is an opportunity for the supermarkets to gain market share from the established banks and financial advisors
  • Other institutions enjoy lower levels of trust among the public
• Insight: Trust in financial advisors varies by region
• Trend: Trust in financial advisors is correlated with trust in the banking industry
• Insight: The more trust in the banking industry has fallen, the less willing consumers are to pay for advice
  • (Untitled sub-section)
• Trend: Consumers trust their own bank considerably more than the banking industry as a whole
• Insight: With a few exceptions, trust in banks not fallen greatly since the onset of the credit crunch
• Trend: Consumer loyalty is influenced by trust
  • Dependence on consumer apathy and inertia has led financial institutions to become complacent
• Insight: The willingness of consumers to shop around is affected by levels of trust with their primary bank
• Insight: Where customers have lost trust in their bank, they are likely to use other sources of advice
• Trend: Consumers are less willing to buy financial products purely on the basis of price than pre-credit crunch
  • Trust transcends price in the banking equation
• Insight: Where levels of trust are low, consumers are less likely to focus on price as a key determinant of product choice
• Trend: More knowledgeable and sophisticated consumers are more active in the market
• Insight: Trust in banks drives willingness to seek professional advice
• Insight: Consumers who are well-informed about financial matters tend to have more trust in the industry than those who are less confident
• Insight: Financial confidence leads consumers to look beyond their primary bank for advice

ACTION POINTS

• Action point: Advisors need to renew their efforts to improve their standing and reputation among the public
  • Proposed measures to reform the market for advice in the UK can serve as a template for other countries
• Action point: Banks should stop marketing themselves purely on a commodity basis, and instead focus on building emotional ties by offering wide-ranging advice
  • First National Bank of South Africa has launched a website offering advice and information on a range of financial and economic issues
  • NatWest introduces a campaign to improve the financial knowledge of UK consumers
• Action point: Financial advice should be widened in scope to address consumers' lifestyles in the whole
  • Financial advisors should strengthen relationships with their clients
  • Providers should consider tie-ups with aggregator sites

APPENDIX

• Supplementary data
• Definitions
  • Independent Financial Advisor (IFA)
• Methodology
• Further reading
• Ask the analyst
• Datamonitor consulting
• Disclaimer

TABLES

• Table: Net trust in financial institutions
• Table: Proportion who trust financial advisors and brokers
• Table: Proportion who will not use paid-for advice
• Table: Net trust in financial advisors and brokers, by country
• Table: Net likelihood to shop around more for financial services and products than before the downturn, by country
• Table: Net trust in primary bank and banking industry, by country
• Table: Net agreement that trust in primary bank and banking industry has fallen since credit crunch, by country
• Table: Proportion who will investigate products elsewhere, open saving account elsewhere, research whether money is safe, or carry on behaving as before
• Table: Proportion who will go to primary bank for advice on savings or for other financial products
• Table: Agreement with looking for cheapest/ highest return products, or financial stability
• Table: Proportion who look for cheapest/ highest return product
• Table: Proportion who will pay more into savings, pay more into pension, invest more for long-term
• Table: Proportion who seek professional advice prior to decisions
• Table: Relationship between keeping up with financial news and trust in banking industry
• Table: Relationship between keeping up with financial news and shopping around for financial products, investigating products from other banks, and seeking professional advice

FIGURES

• Figure: The Datamonitor Trust Process
• Figure: Increased trust helps to build up customer acquisition/retention and improve performance
• Figure: Customers queuing outside Northern Rock as they lose their trust in the bank' s business model
• Figure: Consumers globally feel that government and business share responsibility for the crisis
• Figure: 53% of consumers globally feel that government should be held most responsible for solving the financial credit crisis
• Figure: 64% of Indonesian consumers believe government and regulators are most responsible for solving the financial credit crisis.
• Figure: Trust in advisors is very low compared to other institutions
• Figure: BRIC consumers trust advisors more than European consumers do
• Figure: European customers least likely to shop around
• Figure: Trust in advisors moves hand-in-hand with trust in banks
• Figure: The more trust has fallen, the less willing consumers are to pay for advice
• Figure: Consumers have more trust in their own bank than in the industry overall
• Figure: In general consumers do not feel that their level of trust has declined since the credit crunch
• Figure: Declining trust with primary bank affects prompts ' disloyal' behavior
• Figure: Trust in primary bank drives willing to obtain advice there
• Figure: The high-profile collapse of banks such as Icesave contributed to a change in consumer priorities
• Figure: Wish for stability outweighs desire for good price
• Figure: Recent Nationwide advertising campaign emphasizing its trustworthy values
• Figure: As trust declines, so does importance of price
• Figure: Propensity to seek advice drives future activity
• Figure: Propensity to seek advice is driven by trust in industry
• Figure: Trust in banks is driven by financial sophistication
• Figure: Knowledge drives search for products and advice
• Figure: First National Bank of South Africa is attempting to increase customer engagement thorough its ' How can we help you?' initiative