Despite regulation, the industry is still the least trusted

Richard Rattue

The financial services industry was once again the least trusted sector in the annual Edelman Trust Barometer.

The 2019 report shows financial services only achieving a two-point increase since 2017 which, after five years of a steady increase in trust post the financial crisis, shows that trust is stalling. In South Africa, trust declined a further 6 points during 2017. 

Ongoing scandals in financial services

“The financial services industry is not the only poor performer in the report. Faith in our institutions has faltered, and trust in our leaders – be they corporate or government- is at an all-time low. Ongoing scandals in financial services do not help either,” said Richard Rattue, Managing Director of Compli-Serve SA. 

“Interestingly, the Edelman report points out that reputation, while important, is inherently backwards looking. It is about what a company has or has not done, what its leaders have said, and how they have behaved. Trust, on the other hand, is forwards looking. South Africa is still reeling from the Steinhoff debacle which saw local investors, including those saving for retirement in pension and provident funds, lose millions of Rands,” continued Rattue. 

“The industry is going through a period of intensive regulatory reform, so it is hoped that this picture will change once big pieces of legislation like the Conduct of Financial Institutions (COFI) Bill and the Retail Distribution Review (RDR) are finalised. Though it will take time, I believe the industry is truly working harder than ever to prioritise bringing back trust and better protection for the consumer,” added Rattue. 

Rattue mentioned that a lack of product or cost transparency has been an issue, along with confusing mis-selling of products and services. “Particularly concerning this year is the widening gap in trust between the general population and the ‘informed public’. This is a parlous state-of-affairs, given the urgent need to make financial services accessible to lower- and middle-income individuals, especially in this country,” he said. 

Getting the balance right

Technology and the human touch combined are important, with 81% of the respondents rating companies who “make it easy to work with real people” highly, while 79% rated that “they use the latest technology”. 

This is not surprising, said Rattue. “Financial products and services are simply too complex to leave it all up to technology. The report further shows that human interaction was most highly coveted when getting investment advice, settling a disputed charge on a credit card, and selecting and purchasing investment products. Human interaction was least required, however, when selecting and purchasing an insurance policy, depositing money into an account, and applying for a credit card,” he said. 

This, Rattue added, shows that getting the balance right will be important to retain customers in financial services, or to address how to better service them in line with the products they want. 

Trust can be regained

“It is said that once lost, trust can be hard, if not impossible, to regain. All of us involved in the financial services industry must pray that trust can be regained. Past trends of profit maximisation for shareholder returns and bonus payments as the sole motive for business, are no longer sufficiently meaningful to consumers. They realise the impact that companies have on their lives and communities and want more than just an excellent set of financial results. The financial services industry has, time and again, been guilty of misleading the financially naïve – consumers who lack the knowledge and expertise to fully understand what they are buying,” said Rattue. 

“Thankfully this paradigm has shifted in the last year or so, as the fair customer outcomes message starts to hit home with most organisations. I firmly believe that principles-based regulation is moving us all towards a better industry, and we will continue to see improvements in market behaviours that will lead the industry towards a ‘trusted’ space,” added Rattue. 

Millennials and the concept of retirement

“It is difficult to convince younger generations, who are generally more inclined towards instant gratification, to imagine a future where they’d need a large pot of money to sustain them. It’s almost unthinkable when you’re young to imagine not being able to work because you are tired and older, with less energy or earning potential (depending on your profession or hobbies of course),” he said.

“Regulation 28 has been criticized for its inability to provide enough exposure to equity or offshore assets, allowing for capital to grow, particularly over the long-term. This doesn’t help alongside the negative news that may steer novice investors south, avoiding scandal or having to choose where they can trust putting their money,” emphasized Rattue.

“In time, FSPs through the right balance of tech and human intervention and through proving their ethics, should hopefully come to draw in millennials who have previously been mistrusting of the sector. Offering easy, but safe controls and measures for transactions, transparent communication and product information, alongside access to reliable advice could help to turn things around. Industry players need to put clients first, offering advice ethically too. More companies need to follow this sort of process in all things they do, weeding out any unsavory players that may still be lurking,” continued Rattue.

“As industry’s overhaul within COFI legislation to come supports positive strides forward, principle-based regulation to follow will help change the picture positively for millennials and financial services overall,” concluded Rattue.

Editor’s Thoughts:
As Rattue mentioned above, the industry is truly working harder than ever to prioritise bringing back trust and better protection for the consumer. But do you believe that once lost, trust can be hard, if not impossible, to regain? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts myra@fanews.co.za.