Financial services firms in the U.S. and Europe have taken several hits when it comes to trust as revealed via public relations giant Edelman’s 2013 Trust Barometer. Recent scandals have turned the tide in favor of BRIC and Asia-Pacific firms, according to the Edelman survey. But these far-flung venues may not be the safe havens that some envision.To survey the damage, banks and financial services firms are the “least trusted sectors,” according to the 31,000 respondents in 26 markets surveyed around the world by research firm Edelman Berland.
Not surprisingly, trust took a hit in North America, where it’s at 44 percent, and in EMEA, it’s dropped to 29 percent. In particular, trust in banks in Germany is at 23 percent; in the UK, it’s at 22 percent; for firms in Spain, it’s 19 percent; and 11 percent in Ireland.
Trust is the lowest for financial advisory and asset management firms, which garnered a rating of 43 percent. The least trusted countries for these types of firms are Germany at 23 percent; Spain at 22 percent; Ireland at 22 percent; and Italy at 21 percent. These countries were slammed by the Eurozone debt crisis.
In contrast, 66% of respondents report that they trust Asia-Pacific financial services. Firms in the BRIC category have also earned a high level of trust at 60% while firms in Latin America have 55% trust rating.
The low ratings are due to poor performance and the perception of unethical behavior, according to Edelman. The scandals hitting firms in the U.S. and Europe over the past year have revealed levels of corruption, poor corporate culture and poor leadership that have caused the public to lose faith in the firms of the developed economies.
Yet I think it’s important to point out that there may be trouble in the APAC and BRIC paradises.
In my private discussions with several technology providers that are trying to break into BRIC and APAC markets, it becomes clear that there is a Wild, Wild West aspect to these emerging markets. The regulatory infrastructures, if they exist and are enforced, are often less developed than that of the U.S. and Europe, and there is often a flagrant disregard for rules and regulations.
In addition, many of the local broker/dealers and investment management firms have a rather strange adherence to using local or regional IT and service providers. This holds true even if the local providers are ill-equipped to handle regional let alone global trading. This is more than a little frustrating for solution providers (and their customers) that have a proven, global track record.
While investors and firms should investigate opportunities via APAC and BRIC trading venues, I think they should also double up on the IT, services, networking and operations due diligence to avoid nightmares worse than those experienced via the developed markets.
As for firms in the U.S. and Europe, Alan VanderMolen, president and CEO, global practices at Edelman, offers the following advice via a canned statement: “The financial services industry must become more aggressive in explaining its business model and do away with terms such as ‘proprietary trading,’ ” Essentially, banks and trading firms must use transparency to their advantage and let investors have a clear view into how firms “make money and how the industry is working to benefit its shareholders and society,” VanderMolen adds.
It also might be a good idea to make investors aware of the fact that the regulatory safeguards (with more coming) are in place for their benefit and that compliance is meant to catch the crooks and expose the idiocy and arrogance of institutions large and small.
Sadly, these safeguards may be missing in many emerging markets.
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