In the wake of the Equitable Life affair and an endowment scandal that spanned two decades, the financial services industry is selling to an ever-sceptical public. Tom Williams examines its attempts to rebuild trust
Last week's publications of the Penrose report into the near collapse of Equitable Life and the Treasury Committee's report on endowment mortgages served up a double whammy for a financial services industry in desperate need to regain trust for its very survival.
While Lord Penrose's criticism of Equitable's policy of guaranteed annuities was a body blow to confidence in the industry's competence, the Treasury Committee's report presented a picture of wide-boy salesmen flogging wholly inappropriate products to ill-informed customers.
Equitable Life was a fairly unique example of management incompetence, but the Penrose report has done little to improve confidence in the industry at large. The Treasury Committee's report on the endowment scandal of the 1980s and 1990s simply confirmed the public's prejudices of a financial services world filled with fast-talking salesmen working on sky-high commissions.
Even before the two reports came out, there were indications that public confidence in the industry was low. Last September, a survey of 500 working people by the National Association of Pension Funds (NAPF) found that only 41 per cent had confidence in insurance companies or pension providers to look after their pensions.
While this might be expected of figures provided by an organisation that represents occupational pension schemes, NAPF director of communications Andy Fleming admits that the issue of trust is one that has even begun to affect the way some of his members are regarded.
'One of the problems with the Equitable Life debacle is that although it affected people with private pensions rather than employer-provided pensions, people will put the two together in their minds,' Fleming says. 'A growing mistrust of pensions has arisen and in some ways that is an earned mistrust. But it is also true that people don't trust pensions partly because they don't understand them.'
The financial illiteracy to which Fleming refers has been at the heart of efforts to turn around the industry's image. Stung by criticism that it has not done enough to fulfil its remit of promoting greater financial understanding, the Financial Services Authority, the industry regulator, has put together a steering committee on how to improve financial education. It reports back to the FSA at the end of this month. The regulator has also intervened on the literature that product sellers provide to customers. From November, the 'Key Features' part of product brochures - which many customers discard in despair at the often legalistic description of investments - will be replaced. Instead a separate 'Key Facts' sheet will be enclosed and embossed with the FSA's logo.
Similarly, the Association of British Insurers (ABI) says that around half of the industry's organisations have signed up to its Raising Standards Scheme, which requires financial product firms to communicate product information clearly and concisely.
But some PR specialists are sceptical about how much of an impact clearer literature can make. Fiona Harris, managing director of financial services PR agency Quill Communications, wonders whether consumers will continue to throw away such notes until they change their attitude to the products.
'Consumers have to take responsibility for their own provision. People need to look at their lifestyles and what they want to achieve,' says Harris.
Some of the moves that financial services providers have been making to improve their image have taken this direction, emphasising empowerment of the investor or consumer. Lansons joint managing director Ian Williams says that this is symptomatic of the complexity of the industry's image problem.
'I don't think that this is primarily a PR problem, it is a behavioural problem,' says Williams. 'The industry used to be product led; that is to say that companies would design a product with the expectation that the sales team would sell it. Now there is more emphasis on building a product around client expectations.'
Penrose Financial partner Claire Burston agrees that in the face of the 'uphill struggle to regain the moral high ground', companies are increasingly moving away from products that pose a risk to their customers' funds and their own reputations. 'I suspect many will pull out of the traditional investment-based products such as with-profits bonds and endowments, and concentrate on insurance-related and protection products,' she says.
So in order to avoid the reputational damage that has been associated with complex products of which few people possess a good understanding, the financial products industry will lose these trappings and revert to simpler financial provision.
But ABI head of media and political affairs Alan Leaman admits that convincing consumers that the industry has really changed and that it is a good idea to put their life savings into the accounts it offers will take time.
While Leaman argues that the industry needs to quickly distance itself from the Equitable Life and endowment scandals and project a more 'understanding' image, he does not believe the spotlight will move off financial products any time soon. 'This is a long-term project and the industry must understand that everything it does will now be held up against this benchmark and tested,' he says.
With an ageing population in need of retirement provision and a spiralling housing market, the industry's mettle could be tested again very soon.