When it comes to improving investor trust of financial institutions, a new report contends that it’s not about how low fees can go, but more about establishing an emotional connection.
According to Hearts & Wallets’ “Trust Drivers 2019: Building Retail Investor Trust in the New Choice-Driven Marketplace,” trust drivers have changed over the past decade in a marketplace experiencing pricing disruptions and an explosion of choice. Consequently, customers want to understand firm offerings and they want to be understood, the report emphasizes.
Through a regression analysis of over 90 variables measuring personal characteristics and satisfaction metrics for more than 7,800 consumer responses, the firm has developed a top 10 list of drivers of customer trust in specific saving, investing and advice relationships.
Each of the trust drivers was found to have a different potential impact, with “is unbiased, puts my interests first” as the top trust driver and having the most potential to impact firm-specific customer trust. As such, it can either be a trust builder, or with poor firm performance, can be a trust buster, the report notes.
Remarkably, the type of pricing mechanism – fees, percentage of assets under management and commissions – was found to have no impact on trust at this time, according to the report. As a result, the report warns to not expect lowering pricing or new pricing mechanisms to build trust per se without compelling value propositions. By the same token, poor performance on having low fees is a “trust buster with only a moderate reward for excellent execution,” the report warns.
In contrast to earlier analyses it has conducted, Hearts & Wallets notes that characteristics within the control of firms – or relationship characteristics – have become more important than consumer demographic or attitudinal characteristics. “Whether a consumer identifies as ‘self-directed’ no longer has an impact on trust, reflecting the blurring of distinctions between self-direction and advice seekers,” the report states.
As such, with consumers getting better at assessing providers and their solutions, providers must work harder to provide the information consumers need to make informed purchasing decisions, the report advises.
Rewards of Trust
Not surprisingly, customers who place high trust in their providers (9-10 trust rating on a scale of 0 to 10) are more than twice as likely as customers who place low trust (1-3 trust rating) in their providers to seek help for “choosing appropriate investments,” the report notes.
Similarly, customers who place high trust in their providers are “more likely” than customers who place low or moderate trust in their providers to seek help for “retirement planning, including how much to save for retirement.” That said, the relationship between trust and seeking help for retirement planning is less steady than it was in the past, the report further observes.
“Trust is a complex recipe,” notes Beth Krettecos, a subject matter expert with Hearts & Wallets and co-author of the report. “Consumers are getting better at demanding and perceiving differences in saving, investing and advice solutions. Drivers such as well-trained staff are emerging as important factors that can have more impact on consumer trust than having low fees.”
Top 10 Trust Drivers
According to the Hearts & Wallets analysis, the following variables have the most impact on investor trust.
- Satisfaction with “is unbiased, puts my interests first”
- Satisfaction with “understands me and shares my values”
- Satisfaction with “explains things in understandable terms”
- Understanding of “how firm earns money”
- Satisfaction with “has low fees”
- Satisfaction with “provides clear and useful statements”
- Satisfaction with “has well-trained staff” (with home office oversight)
- Position of service model on Inside Advice® Grid
- Satisfaction with “has made me money”
- Well-known leader; not too innovative
“The trust formula varies by firm based on the business model, existing strengths and areas for improvement,” notes Laura Varas, founder and CEO of Hearts & Wallets. “The main takeaway is that today’s consumers want to understand and be understood. Improving your firm’s understanding of consumer segments will help people to feel firms recognize their needs,” Varas adds.
