It's not difficult to see that the financial services industry is broken.
When I got my start in finance, I knew that most Americans held a negative view of the industry. I felt it, too. I used to say that my job was, in short, "to help banks make more money." I never liked that idea. I'd rather the industry make money for people rather than off people.
Banking, investing, lending, insurance — it all seems to project an aura of questionable trust. And unfortunately, the industry's trajectory doesn't seem to be turning around anytime soon.
It's time for financial services firms to make a pledge to do well by the customers. In fact, this should be a collective New Year's resolution.
We've all read far too many headlines about financial companies betraying customers' trust. The most heinous in recent memory was perhaps Bernie Madoff's Ponzi scheme. A recent example is the Wells Fargo situation, where accounts were created on behalf of customers, without authorization.
Mistakes of negligence don't help, either. The fact that hackers were able to penetrate Equifax — one of the three bureaus entrusted with maintaining consumer credit reports — causes consumers to question whether they can trust the financial industry with their privacy … and whether their money is safe.
When compared to the energy sector, consumer packaged goods, food and beverage, and technology, financial services is the least trusted industry in consumers' eyes, according to Edelman's 2017 consumer trust survey. There's a reason for this: Financial service companies today are still not focused on serving customers first and foremost.
Wells Fargo's recent bout of chaos is a clear example of not putting customers first. After Wells Fargo executives provided little transparency into what caused so many accounts to be opened without customer approval, ex-employees attributed many of the problems to a cutthroat culture where a customer's best interest was never the focus.
As one longtime investor said in a Vanity Fair article about Wells Fargo, "People want to trust their banks, and Wells has brought mistrust to the table."
Wells Fargo's disregard for customers' desires destroys the idea that banks are stewards of people's money, and instead inserts the notion that financial service companies are motivated exclusively by profits.
When people look at the disruption caused by fintech companies in the financial industry, they often attribute the change to technology's role in attracting customers. They look at flashy online signup experiences, and they think that's why customers flock to fintech firms.
Having built Betterment, I can tell you that technology is not the sole reason why fintech companies have disrupted the financial industry. Technology has simply been our way of solving for customers' problems and becoming focused on how they live their financial lives.
What do customers need? What parts of finance are difficult or cumbersome? How do we make our customers' lives easier by helping them manage their money?
These are the kinds of questions financial tech companies ask, and building technology often is the best answer.
It's time for financial services to make sure the customer's interest always comes first.
When we, in the financial industry, read about scandal-ridden companies such as Wells Fargo or Equifax, we're guilty of looking to forms of government, such as the Securities and Exchange Commission or the Department of Justice, to step in.
But when it comes to consumer trust, financial leaders shouldn't wait on regulators to keep their companies in check. Consumer trust is a currency for financial services that can only be gained from building a culture of putting the customer first.
"The choice we face within the financial industry is to commit to acting in our customers' best interest, even when there are marketplace reasons not to do so."
No financial company is perfect. We all face incentives that can — in one way or another — get in the way of serving our customers. The choice we face within the financial industry is to commit to acting in our customers' best interest, even when there are marketplace reasons not to do so. Make a pledge to act on behalf of your customers. Rather than profiting off deception, develop a set of promises to customer.
Here are the most rudimentary examples:
- No charging for trades.
- No hiding fees.
- No paying additional fees to transfer out.
And we could all go much further in our commitments to customer trust.
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.
— By Jon Stein, founder and CEO of Betterment