The widespread lack of trust in banks as providers of investment advice and products – as indicated by a new report – is to be expected in Asia, says Jimmy Ng, Singapore-based director of investments at Swiss private bank Bordier & Cie.
The EY 2016 Global Consumer Banking Survey, which polled 55,000 retail consumers from 32 markets, found that investors did not trust banks to provide unbiased advice. In Hong Kong, for example, only one-third of respondents trusted banks to keep money secure and just one in ten trusted banks to provide investment advice (see graph below).
“This [lack of trust] shouldn’t come as a surprise to anyone,” Ng told AsianInvestor. "Do you trust your banker or financial adviser?
“Foregoing commission – or whatever one calls it; retrocession, distribution or other hidden fees – is a GIVEN, a MUST," he wrote in an email. "It’s the first baby step for banks in the region to rebuild trust through openness and transparency.”
Retrocession fees are kickbacks or trailer payments that asset managers make to advisers or distributors. Such payments are made from client money, but are often not disclosed to clients.
In Europe and the US, retrocession has already been phased out or deemed illegal in certain markets, Ng noted, stressing that many of his comments on this topic comprised his personal view.
He added that banks could draw ideas from other service industries – such as airlines or even telecoms companies in some countries – that are seeking to build trust through greater transparency and being more open in their pricing.
Bank relevance declining
Banks lag non-traditional competitors, such as digital-only banks, financial technology firms or fund supermarkets when it comes to customer trust. This was the case in all three areas that respondents were surveyed on: fee transparency, unbiased advice, and product recommendations.
Globally 40% of respondents said they had reduced their dependence on their bank. The average ‘bank relevance’ score stood at 75.1%. EY's Bank Relevance Index measures a range of current and future behaviour and attitudes to build a score based on how customers bank now and how they want to bank in future.
Factors such as changing consumer behaviour, expectations set by digital platforms and increased competition from new players are eroding traditional banks’ relevance, the survey found.
In Asia Pacific, traditional banks in Australia and New Zealand are still highly relevant, scoring close to 80%. But emerging markets in the region received lower scores. Indonesia scored 66.9, China 69.5 and India 71.1 (the second, third and fourth lowest scores globally).
Consumers in these markets are unlikely to consider engaging with traditional banks for financial products in the future, the survey noted.
In line with the global trend, Asia-Pacific customers are migrating from bricks-and-mortar banks to digital channels.
China, India, Hong Kong and Malaysia are leading the way in terms of digital bank adoption and usage. For example, 67% of respondents in India said they used online and mobile banking frequently over the past year, compared to 37% of global peers.
The best way to lure customers is to provide better service and experience – this was found to trump competitive rates.
All this said, retail customers were not ready to fully replace physical banks with digital-only platforms. Close to half (44%) of respondents globally would not yet trust banks without branches; the number is higher in Malaysia (54%) and Singapore (52%).