New report shows continuing “trust gap” in UK financial services but industry seen as competent.
A new report out today shows a continuing “trust gap” in UK financial services and highlights what the industry can do to address the gap.
However, lack of trust in financial advice and benefit of FSCS protection is clear
A new report out today shows a continuing “trust gap” in UK financial services and highlights what the industry can do to address the gap. Researchers from the Warwick Business School found firms can build trust through greater transparency and collaboration. The role of the FSCS is important to consumers’ dealings with firms.
The Financial Services Compensation Scheme, which protects UK consumers when firms fail, commissioned the report by Nick Chater, Director of Decision Technology and Professor of Behavioural Science at the Warwick Business School, and research consultancy, Decision Technology. The researchers consulted 2,500 people across the UK to get their views on a range of issues relating to trust.
Entitled, Mind the Gap: restoring trust in UK financial services, the report says low trust is primarily a reputational issue. Consumers believe firms are capable of acting in consumers’ interests but choose instead to act in their own interests.
And some sections of the industry have more to do to address the trust gap than others. Trust that consumers will be compensated for losses they incur as a result of poor financial advice is considerably lower than trust that the money in their accounts is safe and secure. That’s something we will need to work with the industry to address, says FSCS.
The paper identifies four things firms can do to boost trust in the industry:
Dealing with a poor reputation with regards to fair pay and not excessively rewarding senior staff;
- Acting transparently in customers’ best interests by offering the same deals to both new and long term customers;
- Telling customers when they would be better off with another product; and importantly
- Providing more information to consumers about the FSCS which helps to instil trust in people.
FSCS plays a part in generating consumer confidence by protecting people when firms fail. The new research reinforces the importance of this role and confirms earlier FSCS research that shows the more aware people are of the Scheme, the more confident they are.
Mark Neale, Chief Executive of FSCS, called for the industry to do even more to promote FSCS protection. He said: “’Trust and confidence are important parts of a healthy financial services industry. This research shows the industry is starting to win back the trust of consumers and has some solid foundations on which to build.
The industry can bridge the gap through greater transparency and collaboration. One finding we heard loud and clear is that raising awareness of FSCS protection among consumers is a key to restoring trust. The industry has come a long way on this, which is welcome.
But the research shows a clear benefit to firms of being clear with people about FSCS protection. All banks and building societies including the FSCS badge in their advertising will be a great start. We look forward to working with the industry to help it address consumer awareness and understanding of FSCS protection.”
Professor Nick Chater, says: “Addressing the issues that undermine consumer trust may require a combination of unilateral action by individual firms, agreement across the industry, and external regulation. The UK financial services sector has a reputation for high levels of competence; if the public can be justifiably convinced that the energies of the industry are being channelled into serving the best interests of customers, rather than the immediate goals of the firms themselves, then there is a real opportunity for dramatic improvements in the trust of the sector.”
Since 2001, FSCS has protected more than 4.5m people while paying out £26bn to consumers.
Notes to editors:
About the research
The research used the ABC trust framework to assess consumer trust in the UK financial services industry. More than 2,500 UK consumers were surveyed on their level of trust in financial service providers, as well as their views on 18 issues relevant to financial services. The issues ranged from keeping money safe from fraud and theft through to being involved with the local community and charities (see the appendix in the report for the full list).
The ABC framework
The ABC framework describes the three conditions that are necessary for trust: Alignment, Benevolence and Competence. In line with the ABC framework, for each issue, consumers were asked to rate how strongly they believe (i) that financial services firms’ interests are aligned with their own; (ii) that financial services firms are benevolent and have the customer’s best interests at heart; and (iii) that financial services firms are competent and capable of delivering on their promises.
Trust gaps in UK Financial Services