Menu Close

How (and Why) the Finance Industry is Rebranding

How (and Why) the Finance Industry is Rebranding

According to a 2017 survey by Edelman, finance is one of the least-trusted industries by U.S. consumers.

In fact, trust in banks dropped by 39% between 2007 and 2010 and hasn’t improved much since, leading to an industry-wide rebranding effort.

Many finance companies are recognizing the importance of improving their reputations, both internally and externally, and focusing on three key stakeholders: consumers, employees and financial regulators.

These companies are rightly concerned with how easy it is for an organization’s reputation and brand to become tarnished or negatively associated with a larger, industry-wide issue.

After years of economic turmoil, today’s consumers are demanding a more open and honest relationship with big brands, especially financial institutions.

According to a study by Cohn & Wolfe, the top three things consumers want in a company are:

  • Communicating honestly about products and services
  • Not letting customers down
  • Acting with integrity at all times

The 2017 Financial Regulation Survey by the Cato Institute found that Americans are far more satisfied with their own banks and financial institutions than with financial institutions in general.

This means that the finance industry needs to focus less on individual firms and more on rebuilding trust in the industry as a whole by tackling issues like reputation, security and recruiting younger generations.

As Warren Buffett famously said, “It takes 20 years to build a reputation and 5 minutes to ruin it.”

Reputation

A study by digital wealth adviser Personal Capital found that most Americans lack confidence in financial advisers.

According to the survey, 70% of respondents said that recent events in the industry have made them question the trustworthiness of financial services professionals.

A third believe these practitioners are likely to take advantage of them.

And, of the 54% of Americans who don’t work with financial advisers, 45% say the reason is due to a lack of trust.

“Too many traditional players in this industry are prioritizing their products, commissions and fees before the client’s best interests, and that is putting consumers’ hard-earned savings and retirement security at risk,” said Jay Shah, CEO of Personal Capital.

“Typically, this is not the customer’s fault, as many advisory firms bury fees in fine print and jargon that is difficult to understand. We encourage all firms to meet a higher standard when it comes to offering objective, personalized financial advice in a more transparent manner, so that we can empower Americans to better manage their financial lives.”

Scandals and Protests

U.S. consumers have long been wary of the finance industry, but a flurry of scandals and crises over the past few decades has effectively destroyed their perception of the industry.

Many consumers’ distrust of the finance industry began in the 1980s with the savings and loan crisis, worsened with the Madoff investment scandal and the 2008 financial crisis and finally boiled over with the 2017 Equifax data breach.

As a result of these scandals and growing mistrust in financial institutions, consumers launched several movements targeting the finance industry, most notably the Occupy Wall Street movement in 2009.

Occupy Wall Street protesters rally in a small park on Canal Street in New York, Tuesday, Nov. 15, 2011. (AP Photo/Seth Wenig)

Protesters called for tightened banking-industry regulations, a ban on high-frequency trading and the arrests of everyone responsible for the 2008 financial crisis.

The movement was widely criticized for demonizing banks and the entire financial industry, with the argument being that only a certain portion of wall street workers was responsible for the financial crisis.

As Rolling Stone writer Matt Taibbi asserted, “These people aren’t protesting money. They’re not protesting banking. They’re protesting corruption on Wall Street.”

So why do financial scandals keep happening?

Andrew W. Lo, a professor at the MIT Sloan School of Management and director of the MIT Laboratory for Financial Engineering, believes that in order to stop the cycle of scandals, we need to understand how they emerge.

In a recent Heleo article, Lo stated that he believes the issue lies within the materialistic values and incentive-centric culture of the financial industry: “When someone is incentivized to make a lot of money at all costs, to exploit little inefficiencies in the market, it’s not surprising that they’re going to do exactly that. They’re not compensated based on adhering to certain rules—they’re incentivized to make money at all costs, as quickly as they can.”

The finance industry’s overemphasis on revenue created a culture where it was acceptable to lie, cheat and steal to make as much money as possible in the shortest period of time.

“The fact is that if you don’t change the underlying structure of motivation, you’re not going to change the outcomes, no matter how much you engage in punitive reactions,” he added.

When profit is put before purpose, customers are reduced to nothing more than sales targets, which damages the integrity and credibility of the financial system overall.

“It’s given finance a bad name, and that is, in a way, the real harm, because there’s a lot of good that finance can do,” Lo said.

“It’s given finance a bad name, and that is, in a way, the real harm, because there’s a lot of good that finance can do.”

Lisa McLeod, the author of Selling with Noble Purpose, thinks it’s not too late to reclaim the nobility of banking.

She suggests unpacking what went wrong in the finance industry, establishing a new purpose, spotlighting employees who have always put the client first and introducing new metrics to ensure every leader promotes the right behaviors.

In order to improve the reputation of the finance industry, purpose needs to drive profit instead of the other way around.

Vauhini Vara, former business editor of The New Yorker, perfectly explained why the finance industry needs a culture shift in a recent article: “Ethical behavior may or may not be in the interest of banks; the scandals of the past decade have certainly shown, though, that it’s in the interest of society at large.”

Pop Culture

Adding to consumers’ mistrust of financial institutions is negative representation in pop culture.

In their book, A History of Evil in Popular Culture: What Hannibal Lecter, Stephen King, and Vampires Reveal about America, authors Sharon Packer and Jody Pennington make a point that “the balance between two competing perceptions–big business as necessary for a first-world America versus greedy fat cats exploiting the worker–is delicate, and the scales can easily be tipped depending on current events.”

The author first noticed a shift in society’s attitude towards the finance industry in the 1980s after the savings and loans crisis, which occurred from 1986 to 1995.

The authors agree that “anxieties about the violence of market liberalization and the perceived threats posed to national security by globalized risks from the 1980s” have been decisive factors in the demonization of the finance industry.

One of the first of many movies that reinforced negative stereotypes of the finance industry and further demonized financiers was Wall Street (1987), with American Psycho (2000) following the end of the crisis.

A 2005 Fortune magazine cover featuring Michael Douglas as Gordon Gekko from the movie Wall Street.

More recently as a result of the Great Recession from 2007 to 2013, the scale has tipped again in the favor of pop culture portraying big business as a blight on society, as seen in the late Wall Street sequel, Wall Street: Money Never Sleeps (2010) and The Wolf of Wall Street (2013).

In these films, the greed-driven protagonists Gordon Gekko, Patrick Bateman and Jordan Belfort stand for the blood-lust of a repetitive system and compulsive consumerism in a perverted spin on the “American Dream.”

Packer and Pennington also assert that pop culture holds that there must be a victim and a villain, drawing a line in the sand: “Are you with the heroic conception of ‘us,’ struggling to stay one step ahead of the pink slip? Or are you with the evil ‘them,’ steamrolling people in favor of a favorable bottom line?”

They go on to state that pop culture uses the finance industry as a scapegoat to “comfort the public by allowing us to avoid collective introspection in search of America’s actual acute threat.”

For example, when Bernie Madoff was arrested and charged with securities fraud, the public singled him out as the face of corporate evil, even though his Ponzi scheme was executed with the help of many others.

Based on the authors’ theory, if crises and scandals in the financial industry slow down over the next decade, we can expect representation in pop culture to improve.

Recruiting Young Talent

Similar to the talent crisis the insurance industry is currently facing, the finance industry is on the verge of a crisis.

According to The Hartford’s 2015 Millennial Leadership Survey, only 4% of millennials are interested in working in finance.

Instead, most are drawn to careers in technology because they believe tech companies are more innovative, flexible and offer a deeper sense of purpose.

Finance companies have increasingly tried to rebrand themselves as tech companies to attract skilled millennials, in addition to offering flexible or remote working opportunities and student loan assistance.

A great example of a finance company merging with technology to attract more millennials is Goldman Sachs, the blue-chip investment bank.

The bank boosted pay for programmers fresh out of college, relaxed the dress code, introduced a system of real-time performance reviews and ordered larger, curved computer monitors for employees.

The New York-based company is also recruiting at a wider range of universities to boost diversity.

“We have the luxury of great interest in people coming, and working for, and being a part of Goldman Sachs and it’s our job to figure out in the changing world how to make sure it remains super, super attractive,” said David Solomon, co-president at Goldman Sachs.

Another major reason millennials are wary of working in the finance industry is that they’ve seen first-hand the negative effects of the 2008 financial crisis and have a deep distrust of financial institutions.

In fact, 85% of millennials claim that the financial crisis affected how they view investing, money and the finance industry as a whole.

The 2017 Millennial Hiring Trends Study by MRI Network found that 40% of millennials place the most importance on brand and reputation when looking for a company they want to work for:

  • Market Reputation (Employer Brand) – 40%
  • Goodwill/Community Outreach – 16%
  • Employee Ambassadors – 15%
  • Online Presence – 12%
  • Quick Mobile-apply Process – 11%
  • Other – 6%

Even millennials who currently work in finance are wary of its reputation – PricewaterhouseCoopers (PwC) found that 21% of millennials working in the financial services industry said that they would rather not work in that industry due to the perceived reputation.

Security

A 2016 Wall Street Reputation Survey by Makovsky found that 27% of U.S. consumers surveyed said they had lost trust in the financial services industry, particularly with regard to personal data.

In fact, the number one concern consumers have with financial institutions is data security.

After the recent Equifax data breach, in which over 145 million people had their personal information stolen, consumers are distrustful of finance companies now more than ever.

Cyber threats are currently the third-largest global business risk, even prompting many insurance companies to offer cyber insurance.

A 2016 report by IBM found that the finance industry is attacked 65% more than any other industry, resulting in over 200 million records being breached that year.

In February 2015, the Financial Industry Regulatory Authority (FINRA) issued a Report on Cybersecurity Practices, which included eight points of guidance for financial advisers and broker-dealers to boost their cybersecurity:

  1. Create frameworks that involve senior management, incorporate the organization’s risk tolerance, and allow for risk assessments that help improve the framework over time.
  2. Identify the sources of potential cybersecurity threats and prioritize the areas in most need of improvement given the organization’s risk tolerance.
  3. Take specific actions to protect software and hardware that contain data, especially data subject to cybersecurity threats.
  4. Implement procedures for responding to cybersecurity incidents and define roles for individuals in charge of the incident response.
  5. Take a risk-based approach to selecting, engaging, and monitoring third party service providers.
  6. Provide employees and other authorized users of the organization’s systems with training appropriate to their specific responsibilities and the types of data they may access.
  7. Create and deploy an effective cyber intelligence program using all resources available to the organization.
  8. Periodically review the adequacy of an organization’s cybersecurity coverage to determine if the policy aligns with threats identified by the organization’s risk assessment(s) and ability to bear losses. Organizations that do not have cyber insurance should evaluate the cyber insurance market to determine if coverage is available that would enhance the organization’s ability to manage the financial impact of a cybersecurity event.

Gaining Back Trust

In order to gain back the trust of U.S. consumers, financial institutions need to work on improving their reputation by valuing people over profit, placing more emphasis on social responsibility and investing in smarter technology to solve customer pain points and attract more people to a career in finance.

Financial institutions like Friend Bank have successfully rebranded and are seeing positive results.

They are turning to social media channels, putting a more human face to their brands and having important conversations with their consumers in an attempt to win back the trust of U.S. citizens.

Friend, a franchise of community banks, rebranded to highlight its mission of helping “friends save wisely, spend prudently, and borrow cautiously.”

The website is filled with pleasing verbiage and imagery of dogs and children, offering a calming, trustworthy and affable appeal.

Trust is fragile, takes years to build and can disappear in an instant.

Jon Stein, founder and CEO of Betterment, summed it up perfectly in a recent CNBC article: “Consumer trust is a currency for financial services that can only be gained from building a culture of putting the customer first.”

“Only when financial leaders step up to serve — not exploit — their customers will we begin to see consumer trust restored in the financial services industry again.”


This post originally appeared on brownandjoseph.com.

Posted in Branding, Marketing, Millennials