How Empathy Can Help Financial Services Become More Trustworthy

How Empathy Can Help Financial Services Become More Trustworthy

The American College of Financial Services
March 16, 2021

There is a dynamic playing out between the challenges of business and society: an increasing realization that a strong commitment to ethics can influence businesses’ financial performance. One such example can be found in the 2019 announcement by the Business Roundtable that the purpose of a corporation is to promote an economy that benefits all its stakeholders. Another leader in the field, Andrew Bailey, delivered a thought-provoking speech on trust and ethics while he was Chief Executive of the United Kingdom’s Financial Conduct Authority. In the speech, Bailey explains, among other things, the complexity of trust and its moral and ethical dimensions, which involve commitment by both the firm and its constituent leaders.

Encouragingly, according to the 2021 Edelman Trust Barometer, business is now the only institution seen as both competent and ethical. That’s right, both competent and ethical. Moreover, business is the most trusted institution of the four studied, which include Non-Governmental Organizations (NGOs), Government, and Media. Remarkably, it is also the only trusted institution with a 61% trust level globally. In 18 of 27 countries, business is more trusted than NGOs (57%), Government (53%), and Media (51%). It is a light of hope in a world too often obscured by mistrust and misinformation. Yet, financial services in particular remains one of the least-trusted industries in business, as measured by Edelman.

Trust is the fuel that enables the financial services industry to effectively provide products and services to clients. If we acknowledge the imperative of trust as necessary for the sustainability of client relationships, I would therefore posit empathy is a main ingredient in that fuel. Companies that brand themselves from a perspective that puts clients’ wants, needs, and dreams before their own, and are able to implement authentic operations to support that brand, are companies that project the image of caring about their clients as humans above all else. The time is ripe for financial services companies to show clients that they “get” them and start to build and sustain trust-based relationships. Demonstrating empathy in those relationships could be one way to get there.

Empathy is a choice to connect with clients. For advisors, this could mean working harder to understand their clients’ feelings, and thereby offer respectful and relevant products and services. In social psychology, the term used to describe the degree of emotional connection between the trustor and trustee is affective trust. Trust is a belief held by the trustor – in this case, the client – in a relationship. Trustworthiness is a characteristic of the trustee, an element of reputation projected by the trustee. Affective trust emphasizes having the trustor’s best interests at heart.

 

 

In my review of literature on trust, I discovered some strategies for promoting trustworthiness. When advisors act with care and concern for their clients, they are demonstrating benevolence. Benevolence is a driver of trust and falls under the header of empathy.

Trust has been a topic of research in many disciplines since the 1950s. This has led to a family of trust constructs that are varied and multi-dimensional. While a single, universally-accepted definition of trust does not exist, across disciplines there is widespread agreement that trust is essential for a range of human experiences, including business.

In a study by Sekhon et al. (2014), they posit that the development of trust occurs by focusing on building trustworthiness between the organization and its customers, through utilizing five dimensions of trustworthiness (expertise and competence, communication, concern and benevolence, shared values and integrity, and consistency). Concern and benevolence are jointly the most important factor in the model, as consumers are more likely to perceive a financial organization as trustworthy when the company displays this type of behavior.

Building consumer trust is an opportunity to increase the long-term effectiveness of financial services companies and advance the cause of business ethics. As noted by BlackRock, a global investment manager and technology provider, institutional investors are shifting dollars toward environmental, social, and governance factors as they manage risk at a company. The thinking is that sustainability and trust-based connections to stakeholders drive better returns. Larry Fink, Chairman and Chief Executive Officer, writes, “It is clear that being connected to stakeholders – establishing trust with them and acting with purpose – enables a company to understand and respond to the changes happening in the world.”

An important part of empathy is the ability to trust and be trusted. In my experience working within higher education, one of the research studies I supervised was on the question of what defines high-quality faculty. We categorized these instructors as those who retained and graduated students at the highest levels of excellence. From the study, we learned empathy was the one characteristic that differentiated the highest-performing faculty from all others. We also learned high-performing faculty fueled connection with their students because they built trusting relationships, helping their students navigate academic expectations in the midst of juggling the responsibilities that come with being adult learners, such as full-time work and caregiving for children or aging parents.

 

 

Financial services companies might consider the relationship between trust and empathy and executing on strategies that cultivate empathy. A first step could be to follow the examples of companies like JetBlue and Microsoft who, with their empathetic content marketing, have created a connection between clients and their respective brands. As Dr. Brené Brown notes, “Empathy is feeling with people.” It is also about recognizing that connection can make things better.

Nursing scholar Theresa Wiseman, who studied diverse professions where empathy is relevant, wrote about teaching empathy, pointing to the general consensus that empathy is a skill crucial to a service relationship. Inspired by Wiseman’s work, the financial services industry might also consider strategies to cultivate empathetic traits from the inside. Highly knowledgeable and experienced financial advisors could learn to be more empathic.

Empathy is not solely innate. In medicine, for example, studies have shown that physicians can learn to be more empathic to their patients. In turn, their increased empathy also increases patient satisfaction and compliance with treatment recommendations. Moreover, these empathic doctors tended to have patients who showed better treatment outcomes. This would certainly get us closer to what Andrew Bailey noted in his speech: “Trustworthiness demands two things: knowledge and skill; and good intentions and honesty.” Diversity, Equity, and Inclusion (DEI) initiatives could also integrate empathy as a training component.

Where there is empathy, there is trust. For clients to continue to return to companies and discuss sensitive information relating to their finances, developing empathy with those clients may be key to opening the door of consumer trust with the financial services industry. The question is: are financial services companies ready to try?

 

Domarina Oshana, PhD, is a social scientist and research development professional. She is the Research Director for Corporate Programs for The American College Cary M. Maguire Center for Ethics in Financial Services.