The powerful legacy of the financial crisis continues to haunt all financial services firms. One word sums up the sector’s biggest problem and its greatest opportunity. That word is ‘trust,’ argues Omer Soker
The powerful legacy of the financial crisis continues to haunt all financial services firms. One word sums up the sector’s biggest problem and its greatest opportunity. That word is ‘trust,’ argues Omer Soker
Capitalism runs on trust, and it was a lack of trust that brought the system to its knees during the financial crisis in 2008. Ironically, it was a lack of trust that permeated between the very financial institutions – both government and private sector – whose role it was, and still is, to serve as our fiduciaries. As the crisis unraveled, trust was further eroded: in the infallibility of markets, the sustainability of iconic institutions, the quality of executive leadership and the wider purpose of business itself.
But it is the financial services industry that has taken the biggest hit in terms of trust. Part of this is logically due to the role it played in the crisis, which still bears its ‘financial’ name. Secondly, the fiduciary nature of the industry’s relationship with a customer’s money adds considerable weight to the responsibility it has to act in a trustworthy manner, which raises both expectations of behavior and condemnation for breaches.
Added to this, customers have witnessed incessant financial scandals throughout 2012, including allegations of mortgage fraud at Deutsche Bank, money laundering at HSBC, Libor manipulation at Citi and Barclays, rogue traders at UBS and, of course, the infamous ‘Muppet Manifesto’ at Goldman Sachs. Is it any wonder they distrust whether the industry has learned any lessons? Not only has reputation suffered but so too have perceived performance and perceived behaviors.
THE EFFECT ON BROKERS
What does this mean for mortgage professionals? How can they drive demand in the sector, meet the expectations of savvy customers, or add value by educating key clients on wealth creation?
Trust is measured not only in terms of reputation, performance and behavior but also in the specifics of transparent, fair and objective customer engagement. It provides an exceptional opportunity to not just restore lost trust in the greater system but also to use the creation of trust through responsible recommendations as a new competitive advantage.
The enormity of the crisis has, perhaps unfairly, tainted all financial services firms, and this is the reality they must now work to change. The 2013 Edelman Trust Barometer reinforces the crisis of confidence in leaders themselves, with trust in business 32 points higher than trust in its leaders to tell the truth. This means the lack of trust ignited by the crisis has grown personal, with the onus now on leaders themselves to start restoring it.
Michael E. Porter, a leading authority on company strategy and the competitiveness of nations, says that the legitimacy of business has fallen to levels not seen in recent history. One of the dangers he cites is that this diminished trust may lead governments to set policies that further undermine competitiveness and sap economic growth.
Trust needs to be restored by the financial services firms themselves, not only to avert the intervention of more government regulation but also to keep in line with customer expectations. Ethical Consumer’s research shows that between 5% and 10% of buyers are always ethical, while 60% to 75% are sometimes ethical and influenced by availability and choice. In other words, the majority of buyers are influenced by ethics, and favor companies demonstrating trustworthy behavior.
ACCOUNTABILITY
Another fundamental point of difference today, from the past, is the ready availability of information and ‘mass connectivity’. The restoration of trust and growth now takes place in an environment of transparency and accountability. There are no shortcuts. This time, the world is watching. Armed with knowledge and social media, consumers are holding financial services firms accountable to act with ethics. As consumers fully realize their newfound power, they are increasingly wielding it to change the way business is conducted.
The crisis has also strained the trust between companies and their employees, which can be measured by the amount of gossiping, venting and complaining that goes on under the surface. Most leaders are too weak to address this because they are scared of conflict and don’t know how to build the trust that resolves it, in turn creating a vicious cycle.
Organizational ethics will restore trust because ethical leadership demands that issues such as a lack of resources, inappropriate pressure, mixed messages, lack of oversight, wasted productivity and internal politicking are addressed. Talented employees are quickly realizing they don’t have to be compromised by this kind of conduct and are selectively targeting the best-practice employers they want to work for. Financial services firms must earn and maintain the trust of their employees by acting with integrity to get to the truth of what’s causing a problem, and then fixing it. Once this is done, the onus can shift to employees to deliver.
In the 1500s Niccolò Machiavelli argued in his book The Prince that cruelty restored order and obedience. During the Industrial Revolution in the 1800s, businessmen were able to ignore social justice to increase profits. In the 1980s, ‘greed was good’ on Wall Street. In 2013, companies no longer have such control over markets, customers or employees, and need new tools of engagement. Our global system, too, is now so interdependent that our interests are becoming aligned. Financial services firms need to serve customers and communities better in order to serve their own interests.
UQ Business School engaged Dr Graham Dietz and Dr Nicole Gillespie for a study on building and restoring organizational trust, and found three characteristics leaders need to build trust:
- Competence: the knowledge, skills and experience to do the job
- Benevolence: people want to feel their leaders have their best interests at heart
- Integrity: the adherence to a set of clear principles such as honesty and fairness
Ultimately, trust can only be created by behaving in a trustworthy manner on a consistent basis and delivering on integrity, competence and benevolence. Trust arises through respect, transparency, knowledge and diversity of ideas and influence. These are not new concepts. They are fundamental aspects of our true nature. To access them, we need to ‘unlearn’ many of the stereotypes we have been taught about business. In particular, we need to unlearn that control and command systems are effective, that secrecy and deceit enhance value, and that benevolence and integrity are actions that business often associates with weakness or naivety.
For mortgage professionals, it starts with better questioning at the customer interface to understand fully and act on their needs and concerns. Recommend not just property-related options when asked for bigger-picture guidance, and you will find, in the long run, your trust will be rewarded.
To restore trust in modern-day commerce, financial services firms need to change customer perceptions around ruthless, manipulative or hard-talking advisers being good for business. We need to unlearn many of the outdated, often unchallenged concepts we link with success, and open our minds to an evidence-based, pragmatic review of how integrity, benevolence and competence will drive commercial success in the financial services future.
