That these are extraordinary times is an understatement.
Not only have consumers lost confidence in financial systems, but those working within the system share the feeling of uncertainty. The fundamentals are off and everybody is grasping for ways in which to get back to life as they knew it before the crisis of confidence hit. But there is no going back. All we can do is reflect on how we got here and move forward.
Much of the responsibility with this fiasco lies within the financial system itself. There were failures at all levels within the system -- banks, regulators, government and consumers. Everybody wanted to believe that the growth and expansion would continue. The warning signs were all around us, and most knew that trouble was coming. But knowing about the problem and confronting the problem are two different things. As one executive whom I interviewed said: "Who wants to be the one to spoil the party?" Yes indeed. Clearly, nobody wanted to step up and do just that. The result was devastating and fuelled the distrust which is now prevalent among the public.
The public has grown highly suspicious of those running the financial services sector. Faith in regulators was compromised by a combination of industry self-regulation (let the free market prevail) and a focus on high profile cases which did not represent the scope of the problem. The public views regulators as part of an insider's club whose objectivity is compromised by the entangled relationships regulators have with those whom they are charged with regulating.
Those working within the industry are often in denial of what is happening within and external to their businesses. In the past, their view was that as long as money was flooding into the market, there was no crisis of trust. What a house of cards this denial was built upon. Whenever another person was identified as working in violation of regulations or, even worse, was accused of fraud, the common response from the industry was that these were rogue actors. Yet, "rogue actors" continued to emerge in growing numbers over the next few years.
The industry was guilty of two things: Rationalization of their own behaviour, and insularity of views which disconnected them from their customers. They had no idea whether their customers really trusted them or not. They never asked.
Customers played their part by not wanting to question or challenge the advice of financial professionals. Did they really want to face the truth? After all, what alternatives did they have? Place their money in a zero interest bank account, or stuff it under the mattress? Customers essentially held their noses and invested. Furthermore, if they could not trust their advisor, what did it say about their judgment in general? So they didn't raise the issue either. The cone of silence prevailed at all levels.
The markets began to unravel as the economy began to falter. The public began asking questions of politicians, regulators, advisors and bankers. Financial institutions began to experience serious reputational risks, and did nothing to address them. Head in the sand strategies continued to be enacted. Marketing messages about the safety of investing in particular funds or with particular institutions continued unabated. The public just rolled their eyes and recalled the past several years of scandal and current decline of investment values. Still, the industry did not change their message.
It has all come to where we are today: Loss of confidence, loss of trust, and staggering market losses. This is the time for transparency, authentic conversation, honesty and humility. Those who display this behaviour have a chance to slowly regain the shattered trust of their customers. Straight talk. Honest talk. Committed talk. No spin. No rationalization. The industry messed up, and the public wants to hear the truth.
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