Even with the depths and scariness of the financial crisis in the rearview mirror, consumer polls show the reputation of the financial services industry near or on the bottom rung of trust.
This year's scandals including HSBC's money-laundering settlement, fines over excessive credit card fees, Libor-gate, JPMorgan Chase's London Whale trader losses and Facebook's botched IPO (just to name a few) are keeping the industry on the defensive.
As we enter 2013, it's imperative to understand the challenges financial services companies are facing and how they are trying to rebuild reputation in an unsympathetic climate. Many consumer polls report on reputation, but Makovsky decided to gain a different perspective and surveyed 150 marketing and communications executives at large and mid-sized financial firms to gain insight from the people charged with fostering reputation.
Two-thirds of these executives agree that capital and liquidity challenges, subprime mortgages and bad financial performance hurt reputation over the past 12 months. More than one-third of these executives strongly agree that their company's management of the crisis had the biggest negative impact on their firm's reputation.
Furthermore, virtually all – 96% – of financial industry professionals feel financial services companies invited negative public perception with their actions or inactions during the crisis. And when asked to give a grade for public relations for the financial services industry, 57% of communications and marketing professionals gave grades that would not impress – average, below average or failing. Only about a third of those surveyed gave grades of above average or perfect.
More than eight in ten executives are worried about negative public reaction to executive compensation in the financial services industry. The fallout from executive compensation has already been felt as it was a major issue during proxy season. With the upcoming proxy season, there has been a concerted effort among companies to strengthen communications and provide greater transparency on corporate governance and investor relations.
One of the most visible expressions of public frustration and anger over the financial crisis and its lingering effects is Occupy Wall Street. More than one half (53%) of executives said Occupy Wall Street had an impact on their company's business.
Forty-three percent of these marketing and communications executives said social media efforts had a positive impact on their company's reputation. More than one half (53%) said that their company's social media efforts have had a neutral impact on managing their reputation. Only 5% cited a negative impact. The Financial Times recently reported social media usage is growing among financial services firms. These firms use Twitter more than Facebook generally (with Twitter increasingly functioning as a customer service channel) and use both services as recruitment tools. Blogs and video are also rapidly growing social channels in the industry.
Greater social media penetration is expected as regulatory bodies such as FINRA have issued additional guidelines for its use and a number of brokerage firms have launched social media programs to communicate with investors. Morgan Stanley is planning to allow its nearly 18,000 financial advisers to use Twitter and LinkedIn in limited ways following a test period. Morgan Stanley's army of advisers will be using messages approved by the firm while some of their advisers will be allowed to pen their own tweets.
The Makovsky study found that more than three in four (77%) financial industry professionals feel their company's reputation will improve in the next year, but 74% of financial services marketing and communications executives are counting on increased regulations to help build customer trust.
When asked what was important to rebuilding their company's reputation, executives cited a mix of critical issues. Customer satisfaction received the highest rating for building reputation. Other critical elements of reputation are a strong brand supported by a CEO with a clear vision, a proactive thought leadership program, good financial performance and innovation.
One can argue the industry currently finds itself in a state of limbo without a champion or statesman that can articulate where the financial services industry is going, what is the new sustainable model that will instill trust and how it will more adequately address client needs and expectations. With new regulations phasing in, disruptive business models at the door and a frantic search for growth strategies, this leadership gap is both a crisis and an opportunity.
The new year represents and opportunity for banks to restore their reputation, but much has changed in terms of customer expectations regarding how financial institutions must serve. Understanding and addressing these expectations is the key of a successful reputation program. Who will step forward and lead?
Scott Tangney is executive vice president of Makovsky, a public relations firm. He has more than 25 years in communications experience working with financial services firms and is a frequent speaker and writer on the financial services industry and reputational issues.