Already ten years ago the financial crisis sent systemic shockwaves across all economically-functioning industries. This event went largely unexpected by a broad consumer mass, since banks and institutions were endowed with high levels of trust. However, the lack of regulations behind the crisis decreased consumer trust drastically. Not only did banks represent one of the least-trusted industries in the aftermath, but also financial advisory as a service now has to overcome sweeping hurdles to repair trust and confidence.
In practice, consumers do not differentiate between financial service businesses; a bad image of the entire industry has been impress onto their minds. Thus, the need is urgent to reestablish trust in the financial advisory sector, since it is regarded as a crucial factor for financial decision-making at personal and institutional levels.
- Industry reputation
As already mentioned, skepticism emerged towards the financial advisory sector around a decade ago. Especially among younger generations, the tendency to distrust financial institutions is steep.
- Wrong focus
It should be the goal of companies to serve customers first and foremost. However, the influence of incentives and commissions on specific products leads to biased opinions, self-motivated outcomes, and aggravated customer distrust. The most important part of financial advisory is to listen to the customers, find products which fit to their real needs, and leverage resources in niche markets that are the financial “diamonds in the rough”.
- Over-specialized advisory
Many advisors only have specific knowledge in one area or industry. As some consumers might lack extensive financial knowledge or seek investment opportunities in diversified markets, choosing the right advisor can be an arduous task. Even if the advisor’s knowledge would not optimally correspond to the consumers need, the consumer might still ask for an advisor’s services. Subsequently and due to insecurities and uncertainty, distrust in increased because the advisor is incapable of bringing sound investment opportunities.
- Unclear regulations
Consumers receive too few insights on how financial advisory is practically regulated. This lack of transparency also decreases the trust of consumers.
- Free online information
Especially younger generations ask themselves, ”Why to pay for a service if financial information is easily accessible online?” Again, the lack of price transparency for a given consumer benefit (e.g. individualised advisory at a certain level of risk) often raises skepticism against goodwill within the financial industry.
The future of trust
In order to rebuild trust, financial advisory must be reformed. The questions - what customers really need and what would benefit their financial lives - must be fundamentally answered in this process. A new culture of putting consumers and their individual needs first needs to be introduced. Currently, Finnoq develops a solution, which will increase trust in financial advisory again. Our transformation has already begun.