Liz Field, the chief executive of the Personal Investment and Financial Advice Association (PIMFA), introduced a more nuanced take on the subject of trust, or perhaps more pertinently the consumer’s lack of trust in the banking and financial services sector, during her talk at Compeer’s most recent conference on the UK wealth management industry.
Rather than focusing on questions of competence and probity, the two subject areas that have tended to dominate the debate, Ms Field suggested that consumers’ lack of trust in the sector could also reflect a wholesale lack of knowledge about banking and finance generally and wealth management in particular.
This insight has much to commend it.
Individuals are much more likely to be suspicious of activities about which they have little knowledge. And this will almost certainly lead to low levels of engagement with the individuals and insitutions that provide them.
Moreover, if they do engage they are much more likely to end up with bad outcomes for a variety of reasons.
They may not be able to articulate what it is they actually want and end-up with something that doesn’t meet or satisfy a latent need. More often they will probably end-up purchasing a product or service that they don’t actually require. And they will almost certainly end-up paying far more than they really needed to.
Perhaps most importantly they will be obvious prey for the unscrupulous.
And this will exacerbate any feelings of mistrust.
Knowledgeable consumers on the other hand can deal with suppliers of goods and services more confidently and get “good” outcomes, i.e. goods and services that meet and satisfy genuine needs at reasonable prices.
They should also be able to avoid or see-off the incompetent, indolent and unscrupulous.
Ms Field’s insight also seems to be confirmed by some of the main findings included in a report recently published by the Financial Conduct Authority (FCA) called “The Financial Lives of Consumers Across the UK”.*
Based on 13,000 interviews conducted across the UK this provides an unprecedented insight into consumers’ behaviour and experiences of dealing with financial services firms.
According to the report only 16 percent of UK adults rate themselves as highly knowledgeable about financial matters.
Given the foregoing it should perhaps come as no surprise to learn that only 40 percent of UK adults have confidence in the financial services industry. Moreover only 31 percent feel that financial firms are honest and transparent.
Financial advisers are rated slightly better. But not by much with 39 percent of UK adults trusting them to act in the best interests of their clients.
Even so the finding that only six percent of UK adults have used regulated advice over the past 12 months looks like a very low level of engagement.
Of course the assertion that consumers’ mistrust may reflect their own shortcomings shouldn’t let the financial services sector off the hook when it comes to cleaning out its Augean Stables.
The sector certainly doesn’t have anything to be proud about given the catalogue of mis-selling and other scandals that have plagued it over the past 30 years or so.
And despite all the swathes of regulation that have been introduced there is still much to be done before the sunlit uplands of consumer contentment are reached.
A more perplexing problem, however, is how to increase consumers’ levels of financial knowledge and literacy.
Making finance part of the national educational curriculum may help future generations. But it doesn’t address the shortcomings shared by the current vintage of consumers.
And it is all very well saying that UK financial services firms should play a much bigger role in improving financial literacy.
But how is this meant to be achieved in practice given the low stock in which financial services firms are held by UK consumers?
What isn’t required is the avalanche of platitudes that is currently emanating from the UK wealth management sector along the lines of “the client is the centre of everything we do”.
In addition to being axiomatic this slogan has the disadvantage of being double edged.
For the client will still remain the centre of everything a wealth management firm does even if it is indolent, incompetent and unscrupulous.
Moreover these platitudes appear to be addressed to current, rather than new, clients most of whom are satisfied and presumably “trust” their providers, at least given the results of firms’ client satisfaction surveys.
Perhaps it is time UK wealth management firms really started to take marketing seriously.
*The Financial Lives of Consumers Across the UK, FCA, June 2018