Publications
Partners
Companies in the financial services sector were again the least trusted among industries, according to the latest annual Edelman Trust Barometer, which has been measuring trust in business, NGOs, government and the media for the last 18 years.
Respondents are asked to indicate how much they trust businesses in a variety of sectors to do what is right.
According to the 2018 report, trust in the financial services industry declined in 13 out of the 28 countries surveyed in 2017.
Overall, the authors found trust in financial services had “stalled” last year, following a five-year rise since 2012.
However, that is taking the views of both the general population and the “informed” population into account.
(The informed population is defined as people from the age of 25 to 64 who are college-educated, in the top 25% of household income per age group in each market, and who report significant media consumption and engagement in business news.)
When it comes to informed respondents, there were double-digit declines in trust in several markets, with the US suffering the worst decline of all.
And, the report says, where informed population trust goes, general population trust follows.
In South Africa, financial services scored 52 on Edelman’s Trust Index, placing it in the “neutral” range.
However, the ranking reflects a six-point decline from 2017’s report. Among the informed public, SA’s financial services scored a slightly more encouraging 57, but still reflecting a six-point decline.
What drives trust? Researchers can make an expensive meal of what is really a very simple answer: conduct. Being as good as your word; walking your talk.
Conducting your affairs with integrity and acting in the best interests of your stakeholders.
Treating your customers fairly!
It’s not surprising companies in the financial services industry are the least trusted in the economy.
Despite the tsunami of regulation that has hit the industry since the global financial crisis, scandals continue to ensue both here and abroad.
Consider the massive miss-selling of credit life policies over more than a decade in the UK; the loss of trust in global accounting firms such as KPMG; the Real Value Arbitrage Fund scandal; Fidentia; and of course, Steinhoff which, while not a financial services company, certainly lost a lot of investors an awful lot of money.
The Edelman report found a new unwillingness to believe information among respondents; a loss of confidence in information channels and sources.
The rise of “fake news” certainly hasn’t helped. Rather, it has instilled a growing scepticism about what is objective truth, and what isn’t. Pity the poor investor in this scenario.
In terms of conduct, gaining an accurate picture of how financial services companies around the globe are conducting their affairs would entail a painstaking analysis of an array of factors, including:
- How a firm responds to, and deals with, regulatory issues;
- What customers are actually experiencing when they buy a product or service from front-line staff;
- How a firm runs its product approval process and what factors it takes into account;
- The manner in which decisions are made or escalated;
- The behaviour of that firm in certain markets;
- Remuneration structures.
The second point – what customers are actually experiencing – can be gauged to a certain extent by the complaints data of relevant ombudsmen.
Again, obtaining an accurate picture would be difficult as you aren’t necessarily comparing apples with apples.
Reports from the UK’s financial ombudsman, for example, show by far the largest number of annual complaints compared to Australia, SA and Canada.
Last year, they handled a staggering 339 967 complaints, up from 321 283 the year before. A significant percentage of this increase can be attributed to ongoing credit life complaints.
In SA, where there are separate ombudsmen for various sectors, the short-term insurance sector generated the most complaints last year, with 9 097 (down from 10 175 in 2016).
What drives misconduct? Again, the answer doesn’t take an expert to figure out. It is quite simply greed.
As Michael Douglas famously said in the movie Wall Street in the late 1980s: “Greed is good”.
A culture of greed has been ingrained in financial services firms for decades, and eradicating it won’t occur overnight.
Greed leads to unrealistic sales targets being set by management, and signed off by the board.
In turn, this leads at the very least to miss-selling and at the worst to out-and-out fraud.
Last year, Thomson Reuters asked compliance and risk practitioners from more than 750 financial services firms across the world, including banks, brokers, asset managers and insurers, how their firms are managing the challenges presented by the regulatory focus on culture and conduct risk.
When asked what was the single biggest risk to conduct facing their firms, the overwhelming response was sales practices.
So what can companies do?
To my mind the answer remains cloaked in simplicity and largely laid out in the content of this article.
We have to get the basics right and make changes to the values that drive respect and trust.
CEOs need to stand up to directors, who in turn need to stand up to shareholders who bully them into a “profits uber alles” strategy.
It is simply not sustainable.
Richard Rattue is managing director of Compli-Serve SA.
This article originally appeared in the Collective Insight supplement in the 19 July edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.
