A question of trust
A succession of mis-selling scandals (personal pensions, endowments, PPI) has left the financial services sector with a reputation on a par with used car salesmen. In the wake of the LIBOR rate-fixing scandal and a spate of high-profile money-laundering breaches, it would be reasonable to assume that its reputation has sunk even lower and that trust has been completely destroyed. However, whilst reputations have undoubtedly been damaged further, there is no real evidence that consumer behaviour has altered, consistent with a loss of trust in the integrity of our institutions. As long as trust in the basic functioning of the machinery of financial services can be sustained, customers seem either resigned to accept, or are genuinely indifferent to, poor standards of integrity in those institutions.
In an FSA paper ‘Personal Standards and Consumer Trust: a Summary of Existing Research’ (Wells and Gostelowin, 2009), a distinction we find very useful was made between “thick trust” and “thin trust”. A thick trust relationship is dependent: decision making is delegated and there is no requirement or desire to question or challenge decisions or advice. It has to start with the selection of an agent but this is dependent on proxies, such as historical connections, following one’s peers, brand awareness and personal chemistry. By contrast, a thin trust relationship is one where both selection and the ongoing relationship are based on scepticism, questioning, willingness to share responsibility – ‘show me’ instead of ‘I don’t want to know’.
The difference between thick and thin trust is engagement. The reasons for a lack of engagement are complex and there is fault on both sides.
Many individuals approach the financial services sector with a sense of trepidation, suspecting that the interaction will result in feelings of alienation and disempowerment. In much the same way as the car salesman attempts to baffle us with talk of dual overhead cam shafts and variable value timing, so the financial industry applies impenetrable labels to what are often straightforward concepts. We are left dazed and confused and therefore become passive partners in our own financial planning. Ironically, when we buy a car the chances are we will do our research, and might even feign some knowledge of automotive technology so as not to appear a soft target. A car purchase may be a significant outlay but making a poor purchase will not be life changing, whereas making poor financial decisions really can be.
What are the impacts of a lack of engagement? As weak customers, we will pay too much for products and services, reducing spending on things we prefer and do engage with. But the true cost is measured in the currency of emotions. Thick trust cannot generate peace of mind. When something does go wrong, regret and recrimination are likely to follow. Without engagement, saving and investing is less likely to take on any of the same satisfaction as spending, as we cannot visualise who is going to benefit, how and when.
Next time someone argues that we need to rebuild trust in financial institutions, challenge them. It is the sort of lazy thinking that goes with thick trust.