Financial services sector is suffering a crisis of trust

THE FINANCIAL services industry was again the least trusted sector in the annual Edelman Trust Barometer, which has been measuring trust in business, NGOS, the government and the media for the past 18 years.

According to the 2018 report, which has a section devoted to financial services, trust in the industry declined in 13 out of 28 countries in 2017. Overall, the authors said trust “stalled” last year in financial services, following a five-year rise since 2012.

The report takes the views of both the general population and the “informed”* population into account. Among 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.

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 the financial services industry is the least trusted sector of the global economy. Despite the tsunami of regulation that has hit the industry since the global financial crisis, scandals continue to occur both here and abroad. Consider the massive mis-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 among respondents a new unwillingness to believe information and 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.

What drives misconduct? Again, the answer doesn’t take an expert to figure out. 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 mis-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. What can companies do?

No doubt some boards will commission reports from expensive international consultancy firms that will cost hundreds of thousands of dollars, yet 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 reinstate the values that drive respect and trust.

Chief executives 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.

*Informed population: aged 25 to 64, university-educated; in top 25% of household income per age group; report significant media consumption and engagement in business news.

Richard Rattue is the chief executive of Compliservesa, providing compliance services to financial professionals.