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Rebuilding Trust in the Financial Services Industry

Do you trust the financial industry?  Trust in the industry has been declining since around 2007, when financial crisis after crisis started occurring.  The housing market was the first to collapse, then risk-taking and lending became irresponsible.  Recently, many have lost even more confidence in the private financial institutions that should be the anchor of our economy.  We have a lot of reasons to dis-trust the financial industry this year since there have been many stories of not only poor judgement being used, but even shady dealings from some in the industry.  A loss of trust is extremely difficult to regain and it truly is the backbone of our financial system.  According to Pensions & Investments’ “Restoring trust in our financial system: It’s all about culture,” Douglas M. Hodge of Pacific Investment Management Co. says that the financial industry can dig out of this hole.

He says that this generation of investors is at a loss with the industry they planned to rely so much on.  The economy needs the savings of private investors to get back on track, but right now the retirement savings gap is just growing.  Many baby boomers are struggling to reach their retirement goals, which devastates their life plans and takes away the economic capital to allow growth and create jobs nationally.  Some are turning to annuity products to help bridge that retirement savings gap because annuities offer guaranteed lifetime income.  But to purchase an annuity, you still need retirement savings from your lifetime of working.  It’s important to restore the trust in the financial industry to help individuals and the over financial picture.

It seems as though in all of the struggle and effort to recoup losses over the past half a decade or so, the financial industry has forgotten its basic purpose.  They are service providers and need to move capital from those who have it to those who need it.  Of course, those working in finance need to get paid for the services they provide through fees and commissions, but they also need to ethically manage risk and maintain the trust of those using their services.  Or in the current case, they need to build that trust back up.  More regulation is being called for by many shareholders as the way to fix this loss in trust.  They think that increased transparency and more safeguards will build back up the financial industry.  While this can be a help, Hodge suggests a refocus on culture as the main trigger needed to improve trust in the industry.

Many problems have arisen because a bad culture of unethical practices has become acceptable.  A strong culture is a good indicator of the future success of a company.  These three things are listed as crucial to having a good culture in business.  The main purpose of the culture is to serve the client’s real need.  Smart management of risk should also be ingrained into the company’s culture.  Finally, the company should have strong responsibility and stewardship to those they are serving.  Their job is making decisions that are in the best interest of society.  They should first serve their clients’ interests, then take the company’s interests into consideration, and lastly take the interests of the individual employees.

It sounds so simple, but is rarely remembered once companies get down to the nitty-gritty.  Clients trust financial companies with their savings and financial well-being.  They need to keep the best interest of their clients in the forefront and rebuild the foundation of trust.  Hodge offers tips for rebuilding that trust in the financial industry.  The leading people and firms have to exemplify a positive culture and values.  Start with the inside of the organizations and ensure they have a positive objective and culture, then that will transfer out in the industry.  Minimize mistakes and make sure that any unethical behavior is not tolerated.  Rebuild Americans’ trust through ethical and positive behaviors with the goal of helping the clients always at the forefront.  You can find Douglas M. Hodge’s full article in Pensions & Investments magazine.

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