Australia may have been spared the worst effects of the Global Financial Crisis, but six years on, its powerful legacy continues to haunt all financial services firms. One word sums up the sector’s biggest problem and its greatest opportunity. That word is trust.
Omer Soker, a corporate speaker, trainer and the founder of The Ethics of Success Corporation, explains in his book The Trust Future, how trust can be the competitive advantage of your firm:
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 permeated between the very financial institutions – both government and private sector – whose role it was, and still is, to serve as our fiduciaries.
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 on behaviour 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, so too has perceived performance and perceived behaviours.
What does this mean for wealth professionals?
How can they navigate the turbulence of Future of Financial Advice (FoFA) reform in the sector, drive demand during a period of economic uncertainty and avoid the threat of additional regulatory burdens in the future?
On a bigger scale, how can they distance themselves from the unethical behaviours of commission-focused advisors who breached their fiduciary duties in the past?
Trust is measured not only in terms of reputation, performance and behaviour, but also in the specifics of transparent, fair and objective customer engagement. It provides an exceptional opportunity not just to restore the lost trust in the greater system, but use the creation of trust through responsible advice catering to a new breed of switched-on consumers.
Trust in leaders
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.
Trust in companies
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.
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. This is essential to rebuild the trust that is the foundation of our system, and strengthen it through effective processes that sustain it.
Trust is the key commodity in business. It may not have been so in the past, but it is today.
In the 1500’s: Nicolo Machiavelli argued in his book The Prince that cruelty restores order and obedience.
In the 1800’s: Businessmen were able to ignore social justice to increase profits.
In the 1980’s: “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 Organisational 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. To restore trust in modern-day commerce, financial services firms need to change customer perceptions around ruthless, manipulative or hard-talking advisors being good for business.
For wealth professionals, it starts with better questioning at the customer interface to understand their needs and concerns more fully. Recommend less than the absolute maximum tolerable risk, and you will find, in the long run, your trust will be rewarded.