Part 2: Why Aren’t There High Trust Strategies in a Low Trust Industry?

The Financial Trust PuzzleIn my last post, I asked the question: If financial services are such a low-trust industry (on average), then why isn’t someone pursuing the obvious differentiation strategy of forming a high-trust organization?

The Reasons Why

I offered five possible reasons, and commenters added two more.  They were:

  1. Wait – some companies really are high-trust.
  2. The nature of the business is highly competitive – you can’t be high trust and stay in business.
  3. The industry is full of untrustworthy, greedy, anti-consumer people.
  4. The industry is so over-regulated that trust never has a chance to get traction.
  5. The media have a bias that will sink most attempts at high-trust organizations.
  6. Greedy shareholders force companies to be untrustworthy.
  7. The industry simply does not understand the nature of trust

Here’s my take on the issue. Please weigh in with your comments, below.

1. Some really are high trust. I’ve seen many parts of organizations – business units of 100 people or so – who absolutely do run high-trust businesses. But I’ve seen very few  who have pulled it off at the corporate level (one I know of first-hand is Bangor Savings Bank). I’m sure there are others, but I’m equally sure they’re the exception, not the rule.

There’s a reason the industry is low-trust – most financial companies simply are not trusted. The data are what they are and they’re not wrong.

2. The industry is so competitive that you can’t afford to be trustworthy. I’m totally not buying this. The financial industry may appear to be “competitive,” but it is also loaded with side deals, barriers to competition, and generally anti-competitive practices. Furthermore, some extraordinarily high-trust salespeople and business units, e.g. in wealth management, are that way precisely because they are high trust. Economics 101: competitive industries are marked by low profits, not high.  The financial industry is very – very – high profit.

3. The industry is full of untrustworthy people. I’m with reader Ronald on this one – the big majority of people I know in the financial industry are not untrustworthy, selfish, dishonorable people. Sure there are Madoffs, but there are in other industries too.  The problem is that good people can get enmeshed in bad endeavors. A whole lot of unethical corporate behavior isn’t due to lax moral standards, it’s due to habits, incentives, and organizational pressure.

4. The industry is over-regulated. There is more than a grain of truth here. If you are constantly investigated and given lie detector tests, eventually you’re very likely to decide that someone’s stealing and lying, and maybe you should try and get your piece of the pie. Conflating ethical behavior with legal behavior, or check-boxes with values, is death to ethics. We can have too much regulation – at the cost of moral behavior.

5. The media done it. Is there a systematic bias against financial industries on the part of media, mainstream or otherwise? I think you can make a case that a great number of media outlets are finely tuned to seek wrongdoing from the financial sector.  But not enough of a case. If Big Finance is so powerful as to control congress, evade prosecution, and continue to collect massive bonuses – then why wouldn’t they have the power to better control their own branding? I can’t disprove it, but let’s just say I’m skeptical of conspiracy theories.

6. Greedy shareholders are to blame. There’s a lot of truth here too. The emphasis on quarterly earnings, and particularly the massive bonuses given to fund managers based on short-term performance all drive up the emphasis on profit.  (Oddly, the short-term emphasis actually reduces the profit which would be available by pursuing long-term trust-based strategies). But this explanation is as valid for high tech as it is for finance, and the tech people constantly score better trust ratings.  I’m not convinced.

And the Oscar Goes To…

7. The industry just doesn’t understand trust. Yes, you guessed it, this is my nomination for best explanation. Here’s what I mean.

First, money may be the most emotional product imaginable. The dreams that can be conjured up by perfume are trivial next to those induced by a big MegaBucks lottery. A financial planner tells me that clients would sooner talk about their sex lives than their financial lives. Money has implications for our status, our future, our children; it’s a nearly pure-emotion product.

And yet the financial industry insists on selling money services on a non-emotional basis. Credentials and qualifications are what financial planners and wealth managers lead with. Fee-only planners insist that because they’re not commissioned they are structurally more trustworthy. Bankers are fond of touting product features. About as far as emotion goes in the financial industry is to invoke symbols like the Rock of Gibraltar, or ads featuring smiling retirees who are moonlighting from pharmaceutical spots.

What you get by promoting the Merrill Barney brand, or the Smith Lynch brand, and the credentials of their employees is weak, thin trust – trust that’s getting weaker and thinner with new media and smarter consumers. Rich trust comes from personal interactions, with individuals who aren’t afraid to get personal. Emotional products call for emotional connection in the sale. Financial people are scared to death to get personal.

Second, financial institutions tend to think that trust is mainly institutional – they can’t grasp that trust at its heart is dyadic, about two people. They worry about their professionals “stealing clients” when they leave – as if the clients were property of the institution – which amounts to devaluing the key interpersonal relationships that can develop between professionals and customers.

Third, financial institutions too often try to have it both ways: they want to appear trustworthy so that clients will trust them – but they rarely turn around and trust their customers. If someone constantly asks you to trust them, but never trusts you, then trust is rather quickly lost. Is your local bank branch empowered to make a spot decision to trust you? Unlikely. And don’t tell me no-doc mortgages were an exception – those were driven not by trust, but by greed on the part of the lenders, suborning falsehoods from customers.

Fourth, no other industry I know of forces profitability analyses to such a detailed level. Not only is the timeframe for analysis very short-term, but decisions are made based on highly quantified, narrowly defined analyses. What happens if we give people a 5-day grace period – if we lose money, forget it. What happens if we tweak the eligibility standards here – if we lose money, forget it.  To some extent, this is because the product of finance is money itself – subjecting money to financial analysis is both obvious and necessary. But it does mean there is very little emphasis put on long-term returns, or balancing offsets. Sponsoring golf tournaments is about as long-term and qualitative as it gets, and I bet every company doing it has some details specs on why it’s profitable.

Finally, as noted in point 4 above, an industry which is tightly regulated can tend to lose track of the distinction between compliance and ethics. “I am not a crook” ends up being the defense against ethical complaints, and that doesn’t do the job.

So there’s my case: I think the main reason the financial industry gets such low rankings on trust is because they simply, fundamentally, do not understand the workings of trust.

Their people are neither stupid nor venal. But the cumulative impact of putting rational over emotional needs, processes over interactions, short-term over long, regulations over ethics, is such that financial organizations simply don’t have much of a clue when it comes to implementing trust.

Too many trust initiatives end up focused on customer satisfaction methodologies, CRM systems, PR and messaging campaigns, and trumpeting credentials. Rarely do they get to the heart of trust – the personal connection between a provider and a customer.

Remember who was number 1? Nurses. Just think about the difference between finance and nursing. Our financial companies could learn a lot by studying how nurses create trust.

Banks Behaving Badly: Or Is It Just Me?

You know how it goes.

The phone rings. It doesn’t show a caller ID, just a number. There’s a lag between when I say “hello” and someone comes on the line.

Why don’t I hang up right then? I really don’t know. My motives are opaque to me, but probably diseased.

This time it’s BankAmerica. They tell me there’s nothing wrong, my credit card has not been compromised—but hey, you never know!

Because they care about my security, they’re going to send me a credit report—free! Which I can then examine, and send in any corrections required.

In addition, they will send me—with no obligation! –an identity theft insurance policy, to protect all my cards. And all I have to do, if I foolishly decide not to take them up on this amazing offer, is to phone them within 30 days to say no thanks.

Otherwise, of course, they’ll bill me, in simple monthly installments, renewable automatically on an annual basis.

I assume that BankAmerica (and anyone else pulling this passive-aggressive “gotcha” marketing strategy) must have a high complaint rate, as people notice that it’s an opt-out, rather than an opt-in offer, and find an unexpected bill in their statement. And I assume that they end up reversing a lot of those “misunderstandings.”

Is it just me? Or does anyone else find this tactic not only annoying, but self-defeating?

What does BankAmerica (or any other bank) gain by having its name linked to a “sales” tactic associated with old record clubs and internet porn subscriptions?

Who is the analyst in the back room at BankAmerica (or any other bank) crunching the benefit/cost ratio of insurance fee income to the cost of processing returns?

Does it occur to him to factor in the cost to the brand? The drip-drip of negative reputation? The effect on BankAmerica’s deposit accounts? Its mortgage business?

And if not, why isn’t he being fired for destroying shareholder value? Because the market honestly does know how to distinguish between companies with good customer reputations, and those with bad ones.

Then again, BankAmerica just bought up Countrywide Financial, the nation’s largest subprime mortgage borrower—because, at these prices, it was a “good deal.”

Not for B of A’s mortgage business’s reputation. Countrywide’s own reputation can’t have added to BofA’s reputation among consumers.

Does reputation matter? I’d like to think it ultimately does. Read the comments to the above ABC News link, and see how many people are down on BofA as a lender. They can vote with their feet.
And now here I am complaining about their telemarketing, letting my fingers do the walking.

What about you?

If you decide not to continue reading this wonderful blog, all you have to do is write in and comment, and there’ll be no charge whatsoever.

Otherwise, I’ll simply bill you in painless monthly installments, renewable automatically every year unless you decide to notify me otherwise, whenever you want.

Trust me!