Leaders across the financial services industry operate in a tumultuous environment of regulatory pressure, demand for transparency and trustworthiness, and shifting customer expectations of value and engagement. The need to respond to the erosion of customer trust and relentless regulatory requirements sets up two competing forces. The first is that new and significant investments must be made into transparency and compliance measures, system and security protections, and high touch customer service and relationships. The second is to retain or grow margin. The intense scrutiny and the dramatically shifting marketplace now means that an industry built to move slowly and deliberately must now transform to respond with speed and agility.
The erosion of trust is at the core of these challenges. The Edelman Trust Barometer finds that in 2017 the Financial Services sector was the least trusted industry, and the trust gap – between the general population and the informed public – continues to widen. Though interest rates are inching up and regulations show signs of easing, the trust gap makes it all the harder for financial services leaders to deliver on high expectations for revenue and margin growth, in addition to the much-needed innovations in their operations, technology and customer service.
Here are three trends we have seen emerge as leaders in the financial service sector tackle the trust challenge and adjust their leadership approaches to deliver business results.
1. A move to disrupt the customer relationship.
Commoditization, digitization and increased customer education are forcing the sector to differentiate and create client value in new, more customer-centric ways. As products and solutions across the financial services spectrum become commoditized and face competition from digital disruptors and FinTech startups, some industry leaders are looking to create segmented, bespoke offerings, targeting “white glove” service for high end customers. The “voice of the customer” is becoming a strong driver as leaders look for ways to create individualized products and services based on data.
The leadership challenge: Leaders face a constant contradiction of competing internal priorities while trying to change the game with customers. In an effort to drive down expenses and insulate their businesses from risk, financial companies are investing in large-scale transformation initiatives that restructure organizations and processes to streamline systems and reduce error rates, often moving non-core processing tasks offshore or replacing those with long-standing relationships who know the customer best with automation. This is happening as clients are simultaneously demanding a human voice who understands their needs and translates those into offerings and information that matters most. Big data offers information without insight, causing customer confusion or worse, misinterpretation.
The hack: Measure what really matters. Success metrics must include customer value indicators, with these results ranking at the top of the leadership agenda and conversation across the enterprise. When leaders foster a culture where transformation initiatives and expense targets rank just below financial performance in the top 3 metrics, and customer value moves down the list, it doesn’t matter how much “talk” there is about customer-centricity. Clients and employees know better and lose faith in leadership. The fastest way to close the trust gap is for top of the house leadership to hold themselves, and others, accountable for improving the client experience. Hero stories must be told about client experience above all else.
2. A requirement to innovate or die…but not at the expense of trust.
Cryptocurrencies, Internet of Things, Cloud and Mobile technologies are disrupting how the financial services industry interacts with customers and moves money, and yet these innovations represent the greatest areas of distrust for the industry. Data that was once locked in large institutions is now available with one-touch. Privacy and use of personal information is paramount while access to knowledge and insight can make or break a company’s competitiveness and future value. FinTech, once defined as back-office automation, has emerged as a market disruptor in the form of fast growing, nimble start-up companies. In fact, Accenture recently released a report which found that investment in FinTech globally has increased from $930 million in 2008 to more than $12 billion by early 2015. Large institutions must keep pace with innovation under the weight of legacy systems and practices.
The leadership challenge: Senior leaders who are tasked with driving down costs and leading large-scale transformations are most at risk for missing the “dog-whistles” of innovation in their organizations. In addition, how customers understand and experience new interfaces often takes a back seat to “getting things done.” Innovation doesn’t happen in a back room under a microscope, or through flashes of blinding brilliance—innovation evolves through interaction, dialogue, problem solving, trial and error, and healthy conflict. When leaders are overloaded or beleaguered, or have lost focus on driving true client value, it’s unlikely they will foster a culture in which innovation can thrive. Our research proves that leaders who drive innovation are able to create an environment of inclusiveness. They invite perspective and input beyond their immediate circle of leaders.
The hack: Encourage great debate. Shepherd great ideas. Create two-way channels of communication to invite perspective from across the organization and look for new ways to connect on a regular basis with employees outside the ‘usual crowd.’ Rather than shying away from differences, create an expectation that people will bring different points of view to the table, even if they clash. When it comes to technology innovation and expectations, this is especially important – multi-generational teams can help leaders crack the code on what different populations of their clients expect from technology, security, and general client experience.
Leaders who foster innovation make it safe for people to debate different perspectives and encourage their teams to do so for the sake of the greater good. They encourage constructive conflict and model the art of how to deal with it. They think of this as business as usual, rather than a separate, ad hoc activity. Approaching leadership from the lens of championing innovation makes it possible to leverage the collective knowledge and expertise of the team to drive results. They’ll produce more than you could alone.
3. A renewed imperative to build the foundation for next-gen leadership.
It’s widely reported that CEO credibility is in decline across sectors and geographies, with high churn rates that lead to distrust of the corporate sector. The financial services industry is hardest hit in a regulatory environment that scrutinizes and audits transactions and interactions at a granular level. These challenges, along with the fast pace of change, are creating the need for new leadership skills and behaviors that get to the heart of instilling trust and confidence in the future, from customers, from investors and from employees. Now more than ever leaders need to rebuild trust and demonstrate integrity. This must be combined with authentic, real talk that a millennial workforce demands—all imperatives in an environment traditionally not focused on these capabilities.
The leadership challenge: The old models of leadership aren’t keeping up with the changing imperatives for leaders to demonstrate integrity, authenticity, inclusion and transparency. Today, leadership character is the single biggest enabler of trust, and communication is the currency through which leaders calm the waters, focus their teams, and build followership. Yet communication is also among the most frequently cited issues impacting employee engagement and reducing trust in leadership. Relying on the old models to develop future leaders continues the cycle of leadership unprepared to map a different path, one that engages a diverse group of customers, employees and the marketplace in growth and innovation.
The hack: Build an actionable leadership model for the future, not the past. Recognize that some of the traditional bellwethers for high performance from leaders in the industry – a singular focus on bottom line results and operational efficiency – are now just table stakes. Lay out a definition and development path that prioritizes the new game-changing behaviors and links them to business outcomes. To move the needle on trust, integrity and inclusion requires a concerted focus to develop and reward the behaviors that communicate those capabilities to others. When you focus on fostering those cultural behaviors, you empower your team to act. As our research has shown, these socio-emotional qualities of leaders that in the past were traditionally seen as “nice to have,” are now imperatives for the future to become an industry that continues to grow, and to attract and retain the best customers and employees.
The bottom line is financial services leaders need to nail the trust challenge to keep in the game as the industry and the world swirl around them. It’s a daunting task, but the good news is there are a proven set of capabilities, tools and skills to get there. How are you going to make the leap now?