IN MY OPINION: Institute of Management companion Brian Davis, CEO of Nationwide Building Society, suggests how suppliers of financial services might win the public's trust

IN MY OPINION: Institute of Management companion Brian Davis, CEO of Nationwide Building Society, suggests how suppliers of financial services might win the public's trust - The words 'trusted' and 'bank' seldom appear in the same sentence. Perhaps this i

by BRIAN DAVIS, CEO, Nationwide Building Society
Last Updated: 31 Aug 2010

The words 'trusted' and 'bank' seldom appear in the same sentence. Perhaps this is because, given the everyday stories of pensions mis-selling, home income scandals, and Equitable Life losing its way, it would be surprising if there wasn't a degree of mistrust.

In retail financial services we have to operate to particularly high standards of honesty and risk-aversion. But must everything be risk-averse, simply to safeguard people's savings?

This is where issues of risk, reward and honesty come together. Not everyone needs to be sure that all their money is absolutely secure. But most people do, and it's essential they're not sold something that has a nasty surprise at the end. To understand how this is linked with honesty, we need to look at how financial services providers sell their wares.

Advertisements promote the best features of a product - not all the features, just the best ones. If a provider's interest rate isn't great, they'd rather not mention it; if they compare well against some competitors but not others, the latter will probably be left off the comparison tables.

If it's an equity investment, it will probably be compared with a basic building society account. And only the eagle-eyed will spot the qualifying information buried in the small print.

Is this honest? Is it clear? Is it designed to ensure that consumers know exactly what they're taking on? Or is it designed to generate sales regardless of the real understanding of the purchaser?

Even the much-loved best-buy tables are open to manipulation. They represent an instant, spot price, whereas the products they're covering are, even at their shortest, medium-term. A good spot price for a few days gets you into the top three. If an organisation then withdraws that spot price, it can still claim that it frequently features in best-buy tables. And best-buy tables make good copy.

When endowment mortgage products were first introduced they were heralded as a great alternative to a simple repayment option. Now that market returns have dipped, commentators have been quick to condemn suppliers.

But those who took out an endowment mortgage because a newspaper said they were good cannot then get reparation from the paper. At the end of the day, the consumer made the decision to purchase.

Many commentators do seek out misleading data. The Sun-day Times Adwatch recently pointed out that a certain bank offering an interest rate on its current account of 5.38% actually required a balance of pounds 500,000 to qualify for this rate, and the rate on less than pounds 5,000 was zero.

Although mortgage advertisements are required by regulators to include a description of the APR calculation, they often use microscopic print, which few people read. Yet the regulators are in the clear, because they made sure the information was available. Isn't it time for a more commonsense approach to qualifying information?

It isn't just about the descriptions or even the small print - there are the products themselves. Plenty of competition must be good news for the consumer - or must it?

Imagine the consumer is looking for a mini cash ISA. More than 100 of these savings accounts were listed in a recent issue of Moneyfacts magazine.

Each one had 10 points of tabular comparison and an additional space for extra notes to cover the points not listed, and there were a further 18 general notes of explanation.

Choice may be a good thing, but there is now deliberate confusion - lots of minor differences that enable inferior products to hide under a mass of impenetrable statistics.

Furthermore, products come and go. The so-called portfolio management technique (good starting rate, then reduce it, then introduce a new good starter) is still in use. This and other methods rely on customer inertia to ensure that many are not getting the best deal. Waiting for people to sign up to a better mortgage rate, instead of applying it automatically, is a good example.

All in all, then, people don't trust financial services suppliers for good reasons. Isn't it time suppliers got their act together and gave the industry something to be proud of? Or would that interfere with profits too much?

I'm sure ways could be found to clarify what's on offer, but there appear to be few who really want such measures to succeed. Standardising legislation is probably the only way forward. The Government has made an attempt with the introduction of CAT standards for some products, but these have yet to take off.

I would like to see the development of some simplified scales such as a form of star rating. With savings accounts, one could show five stars for a true instant-access account and a single star for a five-year bond.

At the same time, an interest rate that is more than 3% below base rate might attract one star, and five stars if it's more than 3% above. Then consumers would be able to see the trade-off of one feature against another - and make their choice.

If that seems too simple, I'm sure we can trust the financial services industry to think of plenty of reasons why it's too difficult to do.

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Subscribe

Get your essential reading delivered. Subscribe to Management Today