By Business & Finance It would be a shame if regulation were the only agent of change in winning back consumer confidence in the financial services. The industry itself must make changes – and that includes reducing its dependence on transaction-based compensation, writes Eunan O’Carroll of Friends First.
Since the demise of our banks and the dramatic impact on Ireland’s financial services landscape, the debate has raged on over what the financial services industry will look like in the future. The single biggest question is – who will emerge as the most trusted source of financial advice for Ireland’s financial consumers?
It is interesting to look at the definition of trust in the dictionary in the context of this debate. Definition of trust, (noun), firm belief in the reliability, truth or ability of someone or something (source: oxforddictionaries.com). When you contrast this with the reality of the life assurance industry over recent times, it is clear that the question of who will be the most trusted is a long way from being answered. One thing is for certain; fundamental change is coming, is necessary and will ultimately benefit everyone – consumers, financial advisers and life companies. It appears now that legislation alone will be the dominant change agent in the absence of vision and real leadership.
It is fair to say that during this period there has been a lot of talk, with little or no action, on the part of the key stakeholders in the industry, namely the banks, life assurance companies and the independent financial adviser. This group is the most likely stakeholder to benefit from securing the position as the only source of trusted financial advice. It’s also the group that has continued over the last 20 years to cope with regulatory change and has demonstrated an ability to reinvent itself.
The business model transition requirements in this sector of the market will be unprecedented. The early mover will most likely win best advantage, while those slowest to make the necessary transition will find it increasingly difficult to answer the call for transparency, value for money and ultimately trust from a more discerning financial services consumer in the future.
Rebuilding trust
Rebuilding consumer trust is the key challenge because trust in the financial services industry has indeed been lost. While many understandably point the finger at the banks – who certainly have questions to answer – we all have a responsibility to rebuild that trust. In doing so, we must continue to educate the public about the benefits of products and services we provide and highlight the differences between banking and financial services. For financial advisers, the immediate challenge is to win consumer confidence and establish themselves as the only real source of trusted advice. This will be a long journey and one that will be subject to forensic evaluation by all involved.
Nobody likes change, particularly at a time when, like many other industries, this one is also focused on survival. But change has already begun to happen. If the industry fails to agree on a durable consultative process, then changes could be forced upon us, some of which could be impractical. It would be a shame if regulation alone was the dominant change agent for this industry. It is time to trust one another and to stand up together for our industry, and make the changes we need to rebuild consumers’ confidence in us.
Catalyst to change
Many have pointed to the possible introduction of industry regulation as the catalyst that will bring change. It is hard to see how simply introducing more regulation would be of any great benefit to the industry or consumers. So, while there is a need for a more level playing field for regulation in certain areas, many believe that we should be more focused on enforcing the existing regulations.
We also need to look at who the distributors are and who advises consumers on financial and banking products. Regulation to force the unbundling of banking and financial services products is now long overdue if we are to restore customer confidence. Whatever happens, bancassurers must not be allowed to exploit their access to the money transition system, their customer reach and their distribution infrastructure for competitive advantage.
Leadership
The erosion of consumer trust presents many challenges for the financial services industry; however, it perhaps presents the biggest opportunity for the Independent Financial Adviser. This is evidenced by the recently published John Hancock Survey (June 2012) in the US, which found that investors trust their financial adviser more than their doctor or accountant. While the US market and its financial consumers is a more mature market in its consumption of financial services, it is interesting to note the value placed on this role and how it is possibly a key ingredient in establishing trust.
Establishing this level of trust in Ireland is critical. Independent financial advisers must be prepared to stand up for the work they are doing, to put a value on it and stop relying on transaction-based compensation, which significantly undervalues their role and the benefits to consumers in dealing with them. Those representing the key stakeholder groups in this industry must now show leadership, vision and courage to make the changes required in the re-establishing of trust in the industry.
The independent financial adviser must lead this charge and in doing so, engage all other stakeholders in a process that must ultimately benefit tomorrow’s generation of financial services consumers. All who work in financial services will do well to consider that hope is not a strategy. It is time for real leadership, supported by a courage and conviction never before seen in Ireland’s financial services business.
