Rebuilding Consumer Trust in Financial Advice

Rebuilding Consumer Trust in Financial Advice published by Datamonitor in July, 2009. This report consists of 55 pages and the price starts from US $ 4495.

Introduction

Abstract

Introduction

Consumer trust in Financial Services is at an all time low. In order to attract consumers' money, banks and other institutions must first rebuild trust in financial advice. The importance of trust varies across industry and region but for all FS players trust is a crucial element in retaining and attracting customers.

Scope of this research

• 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.

Research and analysis highlights

Financial advisors suffer the lowest level of trust in financial services. Advisors and brokers are the only financial institution where the proportion of consumers who distrust them exceeds the proportion who trust them.

Trust in financial advisors is correlated with trust in the banking industry. The lower the levels of trust in both primary bank and the banking industry are, the lower the degree of trust shown in financial advisors and brokers.

Consumers are less willing to buy financial products purely on the basis of price than pre-credit crunch. Consumers who may once have been focused on price to the exclusion of almost everything else are now placing a higher premium on stability and security.

Key reasons to purchase this research

• 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.

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

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