In the latest edition of Global Focus Magazine, Professor Paul Kofman, Dean of the Faculty of Business and Economics, addresses the uphill battle to restore trust in the finance sector.
Growing up in a small rural village, I remember that bankers were once held in high regard. The bank manager sat alongside the local GP, the police commissioner and the notary in public esteem… but that was before the bank branch closed its doors and the bank tellers retrenched, replaced by an ATM. Of course, these structural changes were not unique to the banking sector.
Over the years technology introduced a distance between service providers and their customers in many industries. Yet it seems to have disproportionally damaged our trust in the financial services sector. The local bank manager was entrusted with the finances of the community, was invested in the community and could be held accountable by that community. Suddenly, those connections were lost.
Mind you, in those days financial transactions were limited in number and variety, and straightforward to understand. Information asymmetry and complexity were minimal. Financial deregulation changed all that. It triggered intense competition for market share through product differentiation, diversification of business lines, and vertically integrated mergers and acquisitions. Banks turned into financial institutions that catered for all our financial needs – and created needs we didn’t even know we had… Financial advisory services became the key to encourage prospective (and existing) customers to benefit from an ever-expanding portfolio of banking services. Suitability and individual circumstances did not always feature prominently in the advice given. Compensation structures often provided incentives that tilted priority away from clients’ interests.
Undeniably, all that choice enhanced customer satisfaction and provided many new opportunities to borrow, save and invest to achieve life’s goals. I don’t think there is much evidence to suggest that the public wants a return to reliance on the local bank branch. But along with deregulation came a marked and steady decline in the public trust in financial institutions – as conveyed by the annual trust-in-professions surveys.