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Compass Insight

What affect does lack of 'trust' have on attrition on financial services?

Fran Elliott - Wednesday, November 17, 2010

Consumers are asked to measure many factors in realtion to different brands from; awareness of , to satisfaction.  A measure that has been used in the past and that we believe will have growing importance within the new emerging financial environment is 'TRUST'.  However, what does trust mean, how do consumers attribute trust to a brand and what impact does it have on their loyalty when trust is lost?

As a result of discussing 'brand' with consumers, it is evident that trust can be applied to so many elements and varies by financial product.  Therefore, great care is needed when using this as a potential measure of how well your brand is performing against your competition.

From our years conducting financial research we have seen a wide range of 'trust' exhibited.  Most in 'blind faith' in relation to financial service brands, where the customer requires a large degree of trust that a provider will; support them, pay out on an insurance claim or fulfill a guarantee on your savings etc. Where there is so little experience of a provider, positive word of mouth/recommendation, or negative stories become disporportionately important.

In the 'good old days' there was a huge sense of trust in the financial services institutions, where customers were cared for and recognised. This is a far cry from the FS industry today, with the banks still being blamed for the current economic climate and current news of the problems facing Ireland and their banks, acting as a reminder of the fragility of the financial sector.  The impact of this, is to have cracked the foundation stone of viturally all brands, as consumers believe 'if it happened to the large banks, surely it can happen to any of them!'.  This mindset was seen in our syndicated study last year (The impact of the current economy on consumers financial holdings and behaviour) with only 23% agreeing that Building Societies were safer for savings or investments than banks.  It is apparent that no type of financial institution is left unscathed.  This is overlaid on the previous years of mis-selling stories, the highly published challence to overdraft fees and increased difficulty in accessing a human being etc.

The FSA continues to regulate the industry, until the new structure is disclosed by the government, with significant fines imposed during 2010, including Standard Life £2.45m for misleading customers about unlying investment risks and Zurich £2.27m for the loss of customer data.  Although positive measures to protect the consumer, the publication of the need to issue these fines act to further reduce trust and confidence in financial provider and advisers.

The tirade of bad publicity may have been expected to result in consumers switching away from the larger brands, and infact the UK Financial Activity Bulletin had shown that the top 10 financial service providers had fallen in the first two quarters of 2010 from 88.2% to 82%, however, these figures are now increasing again as they attract new customers.  There does, however, appear to be a shift amongst some (more discerning) consumers, as the Mutual's and the likes of The Co-operative have recently reported significant increase in money held.  There is an apparent shift in some consumers to want ethical products and the ethos of the companies that offer these options.  A recent Co-operative Bank press release states that money held in ethical savings products increased at its fastest rate for a decarde during 2009, with a 34% in the money held in ethical savings accounts and investment products. This is double the 15% increase in savings and investments seen across the entire market during the same period.

As the economy continues to struggle out of the recession, competition to attract new customers is going to be fierce and interesting, especially as consumers reassess their views on trust and desired values, alongside the emergence of new brands such as Virgin Money.

It is expected that the larger banks will try to appeal through comparatively higher interest rates.  However, we believe that there is a real opportunity for the non-shareholder institutions to counter this by promoting their mutuality, customer focused ethos and genuine stability within this uncertain economic environment.  There appears to be a proportion of the population who are looking for more than an institution, somone they can 'trust' and who cares, not only about their customers but the economy, by behaving responsibly.

For more information or to discuss our experience of researching this area contact us through our Contact form or call us on 0115 923 5865