New White Paper: Customers’ needs must be put first if financial services firms are to regain lost trust
New report calls on financial regulator to overhaul system to ensure more transparency for consumers, who feel current processes are not fit for purpose.
Addressing the ‘power imbalance’ between financial services firms and customers will help to erode mistrust and ensure better and more informed choices are made about financial products, a new white paper recommends.
The white paper reveals that the methods financial services companies use for assessing people’s needs are not fit for purpose and are limited by their own strategies and regulatory guidelines.
Led by Gianvito Lanzolla, Professor of Strategy at the Business School (formerly Cass), and Danilo Pesce, Research Fellow, the white paper includes surveys of 2,120 people, and explores how people’s financial needs are matched with financial products. Findings reveal that consumers do not trust the financial advice they are receiving from financial services firms, such as banks and financial advisors, and believe that they prioritise maximising their profits over offering clients the best ‘matching’ product.
One survey of 18 to 74-year-olds showed that when applying for ISAs, mortgages, and insurance, only a small minority of respondents (four per cent) felt that financial advisors were interested in providing the best product. Respondents also ranked their satisfaction at the quality of these interactions at just 40 per cent, and overwhelmingly believe that financial advisors care most about providing products that maximise the bank’s own profits (40 per cent).
Further analyses presented in the white paper show that using purpose-oriented questions significantly and substantially increase people’s confidence that their investment and mortgage needs are more properly identified. The same analyses also find that using such questions is likely to result in a much greater likelihood of people buying the suggested financial product.
The report has been informed by 22 industry experts and calls on the Financial Conduct Authority (FCA) — the regulator for nearly 60,000 financial services firms and financial markets in the UK — and financial services firms to make wholesale changes to consumer services.
Supported by Innovate UK and in partnership with Kore Labs, the white paper says that financial services firms and regulators must make changes to offset the existing ‘power imbalance’ between financial institutions and people.
The white paper recommends that financial services firms should:
- Overhaul methods for identifying client needs and become customer-purpose-centric (as opposed to just customer centric) — this will increase people’s confidence that their investment and mortgage needs are more properly identified and increase people’s likelihood of buying investment or mortgage products
The white paper recommends that financial regulators should:
- Address the power balance between financial institutions and people — both experts and people feel that the relationship between financial institution and client is still massively imbalanced, leading to poor matching of financial products with client needs. More should be done to offset this power imbalance.
- Ensure financial education is made compulsory in the national curriculum
Professor Gianvito Lanzolla, who also founded the Digital Leadership Research Centre, said:
“Failure to prioritise and fully understand the clients’ needs are unacceptable and action must be taken to bring back those customers who have lost the confidence of their financial lenders.
“It is the responsibility of the regulator to improve levels of trust and to ensure that adults and those in our schools better understanding the complex workings of banks, mortgages and investment. This will work in everyone’s best interests and make sure that they make better and more informed financial decisions throughout their lives.
“While regulators have achieved several goals, there is much still to be done. Failure to act risks the chasm of mistrust between people and financial services growing even more, with consumers left to pick through the regulatory red tape.”
Sabrina Del Prete, CEO and Founder of Kore Labs, said:
“My 25 years in the industry has taught me that the best financial institutions are continuously striving to better understand the needs and motivations of their customers; they must match this desire with greater transparency around the evolution and real value of the products they offer. Everybody, from customers, shareholders and employees, benefits when this comes together.”
'People’s financial needs and how they are matched with financial products in UK retail financial and wealth management: Current limitations and actions for improvement' is available in full on the Business School website.
- Experts who contributed to this research are: Equiti Capital, The Wisdom Council, The Investment Association, Oxford Risk, Former Barclays Bank PLC MD, Kore Labs Ltd, Acin Ltd, Coutts, Pacemakers.io, Envizage, Sainsbury’s Bank, Brown Shipley, C. Hoare & Co, THETA Trading Technologies, FNZ Ltd, Lloyds Bank Insurance and Scottish Widows ACD, The Scott Trust Limited, Integrity Capital plc, White Capital Partners, Whitefoundation
- The Business School (formerly Cass) is hosting an event, in partnership with Innovate UK and Kore, which will explore the findings of the research, titled ‘Understanding people’s financial needs in the digital age’, featuring expert speakers from across the financial sector. You can register now for the event, which is on Wednesday 9th June between 12.30 and 13.30.