June 6, 2012, by Chris Ennew
A Question of Trust?
I’ve been working on trust in financial services for almost 9 years now, under the auspices of the Financial Services Research Forum (FSRF) at the University of Nottingham. Our work has attracted lots of attention and has been widely used by a range of industry stakeholders, but we also want it to “make a difference” – a real one. So that’s why I was delighted to be approached, on behalf of FSRF, to join The Question of Trust steering group. I was delighted to see our passion for the subject mirrored in the campaign and to have the opportunity to work with industry professionals determined to make real difference to the customer and ultimately the industry itself.
So, how do we aim to make a difference? Our starting point has to be to ensure that the industry and the organisations in understand the nature and significance of trust. It is too easy to dismiss trust as not an issue. The financial services industry is undoubtedly one of Britain’s great success stories. There are many areas in which the industry can justifiably be proud – it has created and protected lives and wealth for many generations. But it cannot be complacent and must be self critical – parts of the industry have been responsible for some of the biggest scandals in business history. Parts, maybe, but it has undeniably happened. It is for the whole industry to first, accept that is the case and second, do something about it. At the root of these failures is a lack of appreciation, and subsequent breakdown, of trust.
Below I will give you a flavour of our studies and the work The Question of Trust campaign will be studying in-depth A formal perspective on trust stress that it is about an individual’s willingness to accept vulnerability because they have positive expectations about the intentions or behaviour of another in a situation characterised by interdependence and risk. In an uncertain situation, In essence, I will be prepared to give you the use of my money because I believe you will return it to me with a reasonable payment for its use..
To the extent that there is vulnerability, risk and interdependence associated with the purchase of financial services, then there will be a role for trust. Retail consumers are certainly vulnerable, the buying process for financial services is complicated by the variety and complexity of the products available. Intrinsically, many longer term savings and investment products are highly complex. The continuous development of variants of the same product with slightly different features only adds to this complexity. The difficulties associated with understanding these products are compounded by the inability to judge how well they will perform in the future; the consumer can only assess the product once it has been bought and even then, that assessment may have to wait 10, 15, 25 or 40 years.
Even in the case of products whose performance can be assessed over a rather shorter term period, the consumer may find difficulties in assessing product performance. For many products, performance depends on both the skills of the product provider and the future performance of the economy as a whole. The performance of similar product types may vary considerably according to the time period over which they are assessed and the timing of initial purchase. Bad performance might be due simply to bad fortune and timing. In making purchase decisions, consumers are forced to rely heavily on credence qualities – on trust and confidence in what a provider does and has done.
And there is also significant risk associated with retail financial services. Risk is relevant to most financial services in some way or another and most in evidence in relation to savings and investment products. Risks are associated with poor product performance, which may be due to the poor quality of the product but could equally be due to misfortune. Risk is inherent in the product but is compounded by the consumer’s typically low levels of understanding and the impacts of uncontrollable factors. Since financial services can and do have a significant impact on the consumer’s well being, a poor performing product can have a very significant impact on individual customers.
There is also clearly interdependence in the financial services sector. The functioning of financial markets means that in general, individuals need the services of a specialist intermediary to deal with their financial needs. More significantly, product variety and complexity mean that the customer is often highly dependent on a financial services organisation for advice about purchases in this complex and risky environment. And the more limited the customers understanding of financial services, the greater the dependence on a financial services provider or a financial adviser.
The specific features of financial services and the importance played by front line staff and sales staff mean that trust may be based in the organisation, the brand or the individual; traditionally, trust in the individual whether real (‘the man from the Pru’) or hypothetical (the ‘bank manager in the cupboard’) has always been of considerable significance to the industry. Increasingly though, as methods of distribution change, the importance of the brand as the basis for a relationships and a basis for trust is increasing.
While there is widespread recognition of the importance of trust, attempts to measure trust all too often rely on simple measures of the concept, using perhaps single statements and often simple yes/no answers. Research in the area of trust (and the related concept of trustworthiness) highlights the richness and complexity of both concepts. Consumer trust in an organisation may be low level or cognitive (that is, based around notions of reliability and dependability) or high level or affective (that is, based around notions of being concerned about the best interests of the customer). In line with marketing studies which have reported close associations between these forms of trust it is suggested that cognitive trust can lead to affective trust. Consumer trust is also related to individual characteristics, reflecting the idea that consumers may have different dispositions to trust. The other major determinant of trust is organisational trustworthiness which is determined by expertise and competence, integrity and consistency in behaviour, effective communications, shared values and concern and benevolence. Our work on trust tries to capture the richness and the complexity of the construct.
Trust may vary across consumers because of different experiences and personality traits even where perceptions of trustworthiness are similar. There is also a relationship between age and trust. Older customers in financial services have significantly higher ratings of trust and trustworthiness than younger customers. Levels of trust are remarkably similar across age groups, apart from the 65 and over group which records significant and substantially higher levels of trust and trustworthiness. Consistent with the findings in relation to age, those customers who have a longer relationship with a financial services supplier report higher levels of trust. Gender also has an impact on ratings of trust and trustworthiness, with female respondents being slightly (but significantly) more positive than male respondents.
There is mixed evidence relating to the impact of channel of distribution. Trust and trustworthiness are not significantly different across preferred channel of distribution (branch, telephone, mail, Internet) for credit card providers and building societies, but in the case of banks, consumers using the internet report significantly lower degrees of trust when compared with consumers who use the telephone and the branch. Research also reveals that consumers in general trust ‘their bank’ but increasingly in great numbers do not trust ‘banks’. Studies from the US also indicate that advisers are at the top of the tree in the trust stakes.
Trust is hard to build and can be easily lost and the sequence of misspelling scandals that have bedevilled the industry have done considerable damage to consumer trust. But systematic analysis can help us understand what drives trust, and give us the foundations on which active consumer trust can be rebuilt.