Trust in banks has been on a shaky ground ever since the 2008 global financial crisis. As I’ve observed in my role as a wealth manager, rebuilding this trust is crucial for both banks and financial managers. Here’s a deep dive into how banks can regain client trust and the key role wealth managers play in this process.
Factors Influencing Trust in Financial Institutions
1. Transparency in Banking Policies
A key factor affecting trust is transparency. In recent years, we’ve seen banks, like JP Morgan’s U.K. division, banning cryptocurrency transactions due to fears of fraud. This move, while aimed at protecting clients, often backfires if it appears to overstep legal boundaries. For instance, cryptocurrency investments and overseas regulated real estate transactions are legal. Yet, banks sometimes refuse these transactions without clear explanations, which can erode trust.
2. Inconsistent Service and Customer Experience
Another trust-damaging practice is banks’ inconsistent service. For example, banks that refuse transactions on dubious grounds but then push their own financial products can appear disingenuous. Clients often find it frustrating when their financial institutions seem more interested in selling services than in providing genuine support.
3. Arbitrary Account Closures
The arbitrary closure of bank accounts, especially for small businesses, contributes significantly to trust issues. Reports indicate that over 140,000 UK small businesses had their accounts closed within a year without sufficient notice or explanation. This lack of communication can make clients feel vulnerable and unvalued.
4. Disregard for Legal Services
Banks sometimes refuse to service legal businesses or sectors that they find unpalatable, such as adult entertainment or gambling. While banks must adhere to anti-money laundering regulations, rejecting legal businesses based on their nature rather than on actual risk can be a trust killer.
Strategies for Building Trust in Banking
1. Emphasise Transparency
To rebuild trust, banks need to be transparent about their policies and practices. Clear communication about why certain transactions are flagged or declined, and providing guidance on how clients can avoid these issues, is essential. For example, instead of outright banning transactions related to high-risk sectors, banks could provide detailed warnings about potential risks.
2. Improve Customer Service
Banks should focus on providing consistent and supportive customer service. This includes avoiding practices where clients feel pressured to purchase additional services after a problem has been flagged. A customer-centric approach, where the focus is on resolving issues rather than selling products, can help rebuild trust.
3. Communicate Account Closures Clearly
For small businesses and personal accounts, clear communication is crucial when an account is being closed. Providing a detailed explanation and ample notice can prevent feelings of mistrust and confusion. Banks should also offer alternative solutions or guidance to mitigate the impact of account closures.
4. Balance Compliance with Fairness
While banks must comply with regulations, they should strive to balance this with fair treatment of clients. Policies should focus on actual risks rather than blanket refusals based on the nature of the business. This balanced approach will help maintain client trust while adhering to legal requirements.
Best Practices for Wealth Managers
1. Educate Clients
Wealth managers can play a pivotal role in building trust by educating clients about banking policies and common practices. By explaining why certain transactions are flagged or how to navigate potential pitfalls, wealth managers can empower clients and reduce frustration.
2. Advocate for Clients
When clients face issues with their banks, wealth managers should advocate on their behalf. This includes explaining to banks why certain transactions or business models are legitimate and helping clients understand how to address any concerns.
3. Promote Transparency
Wealth managers should encourage transparency in all dealings with financial institutions. This involves providing clients with clear information about potential risks and ensuring that they understand their rights and options when dealing with banks.
4. Offer Support During Disputes
If clients experience issues with their bank, wealth managers should offer support and guidance. This includes helping clients draft communications to the bank or providing advice on how to escalate the issue if needed.
Conclusion
Trust in banks and financial services is essential for maintaining strong client relationships. Banks can rebuild trust by focusing on transparency, improving customer service, and balancing compliance with fairness. Wealth managers also have a crucial role in this process by educating clients, advocating on their behalf, and promoting transparency.
