Director of the Centre for Risk, Banking and Financial Services

Transcription

1 Trust and Fair Treatment in Financial Services: Trends and Institutional Comparison Data. Professor James Devlin Dean Elect: Nottingham University Business School Director of the Centre for Risk, Banking and Financial Services The Centre for Risk, Banking and Financial Services (CRBFS) is an inclusive, collaborative research centre based at Nottingham University Business School. Our aim is to produce world-leading research, insight and commentary focussed on financial services consumers, markets and institutions 1

2 Structure of Presentation Introduction and context The concept of trust The concept of fairness Methods Data and reflections Conclusions 2

3 Introduction and Context Many financial services complex and opaque for consumers (H M Treasury, 2002, Llewellyn, 2005, Mazzoli and Nicoloni, 2010) Concepts of trust and treating customers fairly key factors in helping consumers of financial services to function more effectively in the marketplace Not least in providing reassurance that providers are acting in consumers best interests and engendering confidence However, recent narrative has centred on a crisis of trust in banking in particular The aftermath of the financial crisis and lack of contrition on the part of some senior bankers Scandals such as LIBOR and Forex fixing Numerous mis-selling scandals; commission driven bias Target driven, transactional culture Failure to treat customers fairly Controversies around charging structures Perceived predatory products Many others 3

4 Introduction and Context Improving levels of trust and confidence in the sector seen as key in improving public perceptions of the industry Retail Distribution Review Banking Standards Board Industry initiatives such as the Chartered Banker Institute Professional Standards Board Senior Managers and certification regime Other efforts to change the culture Aim: Will also use Centre for Risk, Banking and Financial Services research data to provide insights into measures of various elements of trust and fairness Will look at different provider types Will now introduce and analyse the concepts of trust and fairness 4

5 The Concept of Trust Generally considered a multi-faceted construct and a common approach involves distinguishing between cognitive, or lower level, trust and affective, or higher level trust (McAllister, 1995, Johnson & Grayson, 2005, Sekhon, et al, 2014) Cognitive trust is present when there is a high level of belief that a trustee will be reliable and honest (McAllister, 1995) Based on conscious, mainly rational calculative processes based on factors such the competence, reliability and dependability of the exchange partner. Will it do what it says it will on the tin? Affective trust is more emotionally, feeling based. Based on perceptions that the trustee has care, concern and benevolence (Lewis and Weigert, 1985). Does the company have my best interests at heart? 5

6 The Concept of Trust The distinction between broad scope and narrow scope trust has also been made; we will look mainly at broad scope trust Should be immediately apparent as to why the presence of trust is considered crucial in the case of financial services Trust has been posited to be a key factor in promoting greater consumer confidence and engagement in the financial services sector (Ennew and Sekhon, 2007; Kuneva, 2009; Devlin et al 2014) 6

7 The Concept of Fairness Closely aligned in literature to concepts of justice and equity Approach with most support is three dimensional model: Procedural fairness: The fairness of the process used to arrive at outcomes. Key themes: due process and the fairness of policies and procedures Distributive fairness: The fairness of the outcome achieved. Key themes: how costs and benefits ( the pie ) is shared out between the relevant parties Interactional fairness: fairness of interpersonal treatment, in particular levels of courtesy and genuine bilateral communication 7

8 The Concept of Fairness Guidance from Kumar (1996)as to the relevant subdimensions of elements of fairness: Procedural: Impartiality; Refutability; Explanation; Familiarity Interactional: Bilateral communication; Courtesy and respect And combine these with Distributive fairness (the fairness of the outcome) to arrive at a three dimensional model (procedural, interactional and distributive fairness) 8

9 So, how do the public view the sector in terms of Trust and Fairness And in particular, how do Building Societies measure up? 9

10 Method: We use a nationally representative sample of well over 2000 participants We collect data online, in conjunction with a major marketresearch company at regular intervals We collect data on from consumers and their perceptions related to: Banks Building societies General insurers Life insurers Investment companies Brokers/advisors Credit card companies Each Respondent pre-screened and answers only in relation to one particular provider type Half the sample answer in relation to my bank, my building society etc and half the sample answer in relation to banks building societies etc (narrow v broad scope) 10

11 Measures: Cognitive Trust I trust (FSIs) to do what they say they will (x) are very reliable (x) are honest with customers Affective Trust I trust (FSIs) to have customers best interests at heart (x) are concerned about customers best interests (x) make every effort to address customer needs 11

12 Monday, April 10, 2017 Event Name and Venue 12

13 Monday, April 10, 2017 Event Name and Venue 13

14 Monday, April 10, 2017 Event Name and Venue 14

15 Monday, April 10, 2017 Event Name and Venue 15

16 Data: General Observations We provide an Index score for each measure, which ranges between -100 and +100 A score of zero represents a neutral viewpoint Values above zero are indicative of moderate to strong levels of trust (perceptions of fairness) Values below zero would range from moderate to strong lack of trust (Perceptions of fairness) We show data for the financial services industry as a whole, as well as for each the seven sectors mentioned above. 16

17 Data: General Observations The data collection was carried out at the following times: Wave One: Late 2009 Wave Two: Early 2010 Wave Three: Late 2010 Wave Four: Early 2011 Wave Five: Late 2011 Wave Six: Early 2012 Wave Seven: Late 2012 Wave Eight: Early 2013 Wave Nine: Late 2013 Wave Ten: Mid 2014 Wave Eleven Mid

18 OVERALL TRUST INDEX 18

19 BASE LEVEL TRUST 19

20 HIGHER LEVEL TRUST 20

21 Overall Trust reflections These data are for broad scope trust (banks, building societies etc) Given that figure could vary between -100 and +100 arguably remarkably stable Not indicative of an absolute crisis of trust Marginal improvement more recently Respondents seem grudgingly convinced that base levels of trust are OK But are less convinced that providers in the sector truly have their best interests at heart. 21

22 DATA INSIGHT TRUST AND INSTITUTION TYPE 22

23 DATA INSIGHT TRUST AND INSTITUTION TYPE 23

24 Trust and institution type reflections Brokers/advisors consistently well rated As are building societies Most recently, building societies have overtaken brokers/advisors May be an RDR effect Building societies benefit in particular from being perceived as having customers true interests at heart halo effect or reality? Note vast difference in ratings between banks v building societies Also note different trajectories of banks and credit card providers 24

25 OVERALL FAIRNESS INDEX 25

26 PROCEDURAL FAIRNESS 26

27 Commentary: INTERACTIONAL FAIRNESS 27

28 DISTRIBUTIVE FAIRNESS 28

29 Fairness reflections For the first time since data collection began in its current form in 2009, general perceptions of fair treatment of customers by financial institutions have moved into positive territory, albeit only marginally. In a climate of almost unremittingly hostile coverage, even a marginally positive rating will be welcomed by institutions But distributive fairness remains more negative Other analysis indicates that distributive fairness is 3x as important a driver of overall perceptions of fairness than other elements, so still work to do. Fairness also generally viewed as a key antecedent of trust, so improving perceptions of fairness key to increased trust in the sector 29

30 OVERALL FAIRNESS AND INSTITUTION TYPE 30

31 Commentary: PROCEDURAL FAIRNESS AND INSTITUTION TYPLE Data for procedural fairness and institution type confirms the trends seen for overall perceptions of fairness when analysed by institution type. 31

32 INTERACTIONAL FAIRNESS AND INSTITUTION TYPE 32

33 DISTRIBUTIVE FAIRNESS AND INSTITUTION TYPE 33

34 Fairness and institution type reflections Overall pattern v similar to data for trust Correlation between the two is roughly 0.8 so no surprise. More very positive news for Building Societies Particularly in the area of significant improvement in ratings of distributive fairness, the most important driver of overall perceptions of fairness 34

35 Conclusions Levels of trust arguably not as poor as expected But not good either much room for improvement Brokers and in particular Building Societies stand out from the crowd Building societies excel in the area of affective/higher level trust How to leverage this fact more effectively Similar patterns for fairness And.. Pity the banks, well maybe Thanks for listening 35