Rebuilding Consumer Trust in Financial Advice

• Using global consumer data from our FSCI survey this reports identifies the extent to which trust has been lost.
• The report analyses the causes of this shift & identifies strategies to rebuild trust & encourage customers to take professional financial advice.
• The report discusses what trust means in the context of financial advice & what it means for customer acquisition & retention, as well as performance
• A number of key trends have been highlighted that describe the interplay between trust, attitudes and behaviour in the wake of the credit crunch.

• Access the results of Datamonitor's Global FS Consumer Insight survey, enabling you to understand drivers behind the loss of trust in your industry.
• Identify actionable strategies that can help encourage consumers to use banks and other financial providers for advice.

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

However trust is a fickle emotion, subject to the relative distrust of others

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

Planned changes to advisor remuneration in the UK present a further challenge

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

List of Tables

Table 1: Net trust in financial institutions

Table 2: Proportion who trust financial advisors and brokers

Table 3: Proportion who will not use paid-for advice

Table 4: Net trust in financial advisors and brokers, by country

Table 5: Net likelihood to shop around more for financial services and products than before the downturn, by country

Table 6: Net trust in primary bank and banking industry, by country

Table 7: Net agreement that trust in primary bank and banking industry has fallen since credit crunch, by country

Table 8: Proportion who will investigate products elsewhere, open saving account elsewhere, research whether money is safe, or carry on behaving as before

Table 9: Proportion who will go to primary bank for advice on savings or for other financial products

Table 10: Agreement with looking for cheapest/ highest return products, or financial stability

Table 11: Proportion who look for cheapest/ highest return product

Table 12: Proportion who will pay more into savings, pay more into pension, invest more for long-term

Table 13: Proportion who seek professional advice prior to decisions

Table 14: Relationship between keeping up with financial news and trust in banking industry

Table 15: Relationship between keeping up with financial news and shopping around for financial products, investigating products from other banks, and seeking professional advice

List of Figures

Figure 1: The Datamonitor Trust Process

Figure 2: Increased trust helps to build up customer acquisition/retention and improve performance

Figure 3: Customers queuing outside Northern Rock as they lose their trust in the bank's business model

Figure 4: Consumers globally feel that government and business share responsibility for the crisis

Figure 5: 53% of consumers globally feel that government should be held most responsible for solving the financial credit crisis

Figure 6: 64% of Indonesian consumers believe government and regulators are most responsible for solving the financial credit crisis.

Figure 7: Trust in advisors is very low compared to other institutions

Figure 8: BRIC consumers trust advisors more than European consumers do

Figure 9: European customers least likely to shop around

Figure 10: Trust in advisors moves hand-in-hand with trust in banks

Figure 11: The more trust has fallen, the less willing consumers are to pay for advice

Figure 12: Consumers have more trust in their own bank than in the industry overall

Figure 13: In general consumers do not feel that their level of trust has declined since the credit crunch

Figure 14: Declining trust with primary bank affects prompts 'disloyal' behavior

Figure 15: Trust in primary bank drives willing to obtain advice there

Figure 16: The high-profile collapse of banks such as Icesave contributed to a change in consumer priorities

Figure 17: Wish for stability outweighs desire for good price

Figure 18: Recent Nationwide advertising campaign emphasizing its trustworthy values

Figure 19: As trust declines, so does importance of price

Figure 20: Propensity to seek advice drives future activity

Figure 21: Propensity to seek advice is driven by trust in industry

Figure 22: Trust in banks is driven by financial sophistication

Figure 23: Knowledge drives search for products and advice

Figure 24: First National Bank of South Africa is attempting to increase customer engagement thorough its 'How can we help you?' initiative