“Over the last 30 years financial services has done its best to trash its own reputation. But, even now, it’s not too late as long as the industry values its critical friends”.
When Margaret Thatcher accepted Norman Fowler’s resignation from the Cabinet in January 1990 she wrote, in thanking him for his work reforming social security, “I know you take great satisfaction, and deservedly so, in the rapid spread of personal pensions.” The introduction of personal pensions in 1988 was accompanied by Government advertising exhorting people to ‘break the chains’ of compulsory pension scheme membership and enjoy pensions freedom. Millions heeded the call. Six years of mis-selling later, the regulator forced providers to review all personal pensions sold, resulting in insurers and financial advisers paying at least £11.8bn in compensation.
At the time, pensions mis-selling seemed a one-off. The financial services industry had betrayed the Government’s trust and the faith the public placed in it. Surely it wouldn’t happen again ? Instead, pension mis-selling proved to be the template for the industry over much of the next 20 years. Where pensions led, endowment mortgages, precipice bonds, split capital investment trusts, PPI and LIBOR setting followed. I could go on, but it’s a much travelled landscape.
The result is that the industry’s reputation in 2015 is at an all time low. Of 18 industries surveyed by Opinium Research for Lansons earlier this year, only the tobacco industry is perceived to have a lower reputation by the British public. Within financial services, only the payment services sector, such companies as VISA and MasterCard, has a positive image. In terms of trust, banks, while not trusted, are mis-trusted less than pensions, insurance and investment companies.
All of us have lived with this issue of declining reputation and supposed lack of trust for many years now, and maybe it doesn’t matter. Many individual companies have developed much stronger reputations than their sector. According to The CityUK the UK is the world’s leading exporter of financial services. Of 30 sectors looked at by Reed, banking is the highest paid sector, with financial services (exc banking) in sixth. The three highest paid financial services jobs, according to Reed, are hedge funds, mergers & acquisitions and independent financial advisers.
For me, though, this decline in reputation is important and it’s having three key impacts on the industry. Firstly, the loss of faith of Government has given the industry a weaker voice in shaping the rules of the game. This was most evident over the introduction of pensions freedom, where the team of Treasury advisers around Charles Roxbrugh felt strong enough to go ahead without consulting the industry at all. In the forthcoming Financial Advice Market Review (FAMR) and the threatened thematic review of asset management, the industry voice will have less credibility than many other stakeholders.
Secondly, poor reputation does, over time, degrade the quality of the workforce. Opinium’s research shows that reputation is the third most important factor in deciding where to work after salary and the job itself. Lansons “Britain at Work” Report earlier this year reveals that financial services is in the bottom three sectors for job satisfaction and being proud of the job you do. The talent shortage bemoaned by many advisers is directly traceable to the industry’s image problem.
Thirdly, the loss of reputation leaves the big banks, insurers and asset managers vulnerable to challenger brands and disruptors, but possibly more damaging, extremely vulnerable to price competition and therefore margin squeeze.
But it’s not too late. The recent travails of Thomas Cook, Volkswagen and Talk Talk have at least convinced the world that it’s not just financial services. And Toyota’s recovery last month to become the world’s biggest car seller, after its own crises, shows how short memories are in this social and digital age.
Reputational recovery, for the financial services industry, will come through changed behaviour. As Stephen Covey said “you can’t talk your way out of what you behaved your way into”. Martin Lewis’ message is more straightforward : “if you want to be trusted, be trustworthy”. Financial services companies need to accept that they haven’t yet changed enough. They need “critical friends” not cheerleaders. This includes Non-Executive Directors and professional advisers – and means taking critics and whistleblowers seriously. Ever since its launch in 1985 Money Marketing has fought hard in this regard. Where too many of the industry’s trade bodies have been mere apologists, Money Marketing Editors from Roger Anderson and Tim Potter through to Natalie Holt today have been what the industry needs, a critical friend.
Martin Wheatley said that changing bank behaviour would take 18 months, for each of the eight levels of staff, so around 12 years in total – and new City Minister Harriet Baldwin agreed, when I asked her at this year’s Conservative Conference in Manchester. This “culture change” challenge applies equally to insurers, asset managers and financial advisers. By putting customers at the centre of its world and charging fairly for what it does, the financial services industry can still put the reputational disasters of the last 30 years behind it and return to the sunny uplands of trust it enjoyed in 1985.