Millennials and Money: Makovsky's Scott Tangney on Wall Street's Reputation Five Years After the MeltdownBy Jaclyn Drobny |
This in-depth interview with Scott Tangney is the first in a series of conversations with Jaclyn Drobny focused on Millennials -- those individuals born between 1981 and 2000 -- and the financial services industry. Mr. Tangney is the Executive Vice President of Financial and Professional Services at Makovsky, an award winning Public Relations firm in New York City that specializes in integrated communications. The latest edition of Makovsky’s annual Wall Street Reputation Study revealed that five years after the collapse of Lehman Brothers financial services communications executives still struggle to rebuild their institutions’ reputation and reach the rising generation of Millennial consumers.
What has the response from the financial industry been to the results of the 2013 Makovsky Wall Street Reputation study? How do the results from 2013 differ from previous years? How does this information empower financial institutions?
The industry has embraced and affirmed the results. We were surprised to see that, even five years after the financial crisis, there are still strong emotions related to the crisis and the resulting impact on reputation. Some of the biggest differences in the study's findings year over year were:
Financial brands told us that the top negative factors ruining their reputation were
- 61% said negative public perception of the financial services industry
- 52% said their company’s management of a crisis
- Compared to previous year’s top mentions: liquidity and capital challenges and subprime mortgages.
When asked what were the most important factors affecting corporate reputation for their brand, the top responses were:
- Customer satisfaction (82% - very important);
- Financial performance and/or shareholder value (71%); and
- Strong brand (69%).
This represents a shift from the year before where the top factors were strong brand, corporate governance and innovation, respectively.
We are seeing a watershed change in attitude toward regulation and how it impacts reputation in the financial services industry. Just one year ago, most executives were welcoming regulation as a reputation savior. Today, we are witnessing a rising ambivalence about the impact of financial reform. Some findings that support that…
- In 2012, 74% of communications and marketing executives thought more regulation of the industry would allow reputation and trust to improve faster. But in 2013, 52% disagreed or were not sure that reforms would bolster reputation faster.
- 66% of executives agree that increased regulator actions in the past 12 months have made it harder for the entire industry to rebuild reputation.
- One-third of executives believe that increased government actions and enforcements over the past year have improved the reputation of financial services industry, but just as many reported these actions have had a negative impact on reputation or no impact at all.
Executive compensation issues remain a major reputation risk in the financial services industry. About two-thirds (65%) of executives told us they are worried (very or somewhat) about negative public reaction to executive compensation. While still high, concern about compensation and public perception is down considerably compared to 81% in 2012. It will be interesting what happens this year with bonuses and compensation on Wall Street starting to increase across the board.
I think the study is a wake-up call for the industry about the importance of reputations to the bottom lines as well as how fragile it is and the time it takes to restore. Firms have told us they are using the study as best practices as issues shift and how that impacts the perception of brands and the industry. It’s clear that companies are still trying to get the message and the channels right in order to reach and connect with Millennials and other key audiences.
How has Wall Street’s negative reputation impacted the Millennial generation’s outlook on money, saving, and investing? What role do you think the recession plays in the financial and economic behavior of Millennials?
Millennials' perception of banks and other financial services companies has changed just like everyone else’s following the financial crisis and the resulting Great Recession. Trust and admiration of financial brands is very low but improving. The Makovsky Wall Street Reputation Study found that negative public perception is the biggest drag on the reputation of financial services firms and it will take up to five more years for reputations of financial brands to reach that same level as before the crisis. Also revenue is suffering at these companies due to ongoing reputation and customer satisfaction issues. In fact, the four major banks in the U.S, were ranked in the 10 least loved brands among Millennials according to Viacom.
You need to look at the special situation of Millennials to understand their outlook. The recession played havoc on their early careers. Consider the jobless rate for the past five years and the growing issues and burdens of student loan debt. There is an overall oppression of financial well-being for the majority of this group, as well as lack of confidence that financial institutions can help raise them up to a better level. So when it comes to money we believe that Millennial behavior regarding the financial ecosystem has been forged in the fires of the Great Recession (not unlike those who live through the Great Depression).
Our ongoing research found that GenY’ers (or Millennials) are very interested in learning about money and its management and investment, but they are also very cautious. They are conservative investors holding a greater percentage of cash vs. stocks, compared to Baby Boomers and Gen X.
There is a "trust but verify" approach among Millennials. A recent study by MFS Investment Management revealed almost a third said they would consult another source to gut check a financial advisors recommendation. They do their homework and consult many sources - including friends, family, social community -- before making a decision.
Are there any financial institutions that have tried to be “youth brands,” if so, how does this affect their image? How does the exclusivity of the banking industry impact Millennial attitudes towards personal finance? How does the culture of the banking industry contribute to these attitudes?
We have seen several financial brands attempting to understand and reach out to Millennials.
Wells Fargo has started a brand journalism program to promote its employees, customers and the communities where is operates. The program features an online magazine called Wells Fargo Stories with human interest stories related to the bank. Well Fargo hopes the program connects to Millennials by presenting the bank’s values and social good through everyday life.
Merrill Lynch’s online brokerage “Edge,” introduced a 3D component to their app to help Millennials understand aging and think about their future. The app ages the user by 40 years hoping to make this younger generation stop and think about retirement.
Bank of America’s recent partnership with Kahn Academy could be a new approach to educating Millennials and money, credit, lending and investing.
Several new and mobile-based banks and apps working with a smartphone that appeal to Millennials are gaining some traction in the media because of their disruptive nature:
- GoBank is a mobile banking brand that offers online checking, free ATMs fees and no overdraft fees. Its app features a “Fortune Teller” that helps you decide whether a certain purchase is a good idea and other “fun” features that help teach financial responsibility
- Moven is debit account that tracks money flows and provides spending alerts, analysis and Facebook compatibility.
- Coin is an innovative digital credit card that can hold all of a person’s credit, debit, and loyalty accounts. Once loaded the user can select which payment method to use on a digital display.
The attitude of all consumers is the financial industry is really not that different from 2008. There are many reforms and more aggressive regulators in place, but the Makovsky Wall Street Reputation study found that financial services communications executives felt that the risk in the financial system is just as high as it was just before the crisis. Lack of innovation, regulations restricting social media at financial companies, and persistent perceptions that things haven’t changed are making it hard for companies to rebuild reputation.
Being regulated, financial institutions are slow to change. I think where you’ll see the greatest innovations will be in certain sectors, including digital wallets and payments, mobile banking, and online brokerage. And competition always spurs innovation. In fact, the Viacom report reveals that millennials expect this financial industry to be completely overhauled by the innovation of products and services from tech start-ups.
Millennials are clearly looking for a better experience. They would rather connect digitally rather than go into a physical bank or financial store according to a recent TD Bank study. What worries financial brands is the viability of their role with this generation. Millennials report that banks are less useful or less necessary as a part of their life. In addition, the majority of Millennials don’t feel there is any differentiation among banks in terms of offering. They believe access and use of money will change dramatically in the near future marginalizing the traditional bank.
Overall, we see financial brands trying to communicate the same messages they do to other distinctly different audiences. That’s a problem because we found that millennials aren’t concerned that much about retirement which seems to be the common mantra in the financial marketplace. I’m talking about the ubiquitous TV commercials, “Do you have enough money to last your retirement?” Millennials are more attuned with the stepping stone approach to finances and financial well-being. Things like saving to buy a new car, go on vacation, go to graduate school or start an emergency fund are more vital than how much is in their 401k.
How can financial institutions restore their brand’s reputation for Millennial customers given their tendency to be decreasingly brand loyal? How can brands authentically appeal to Millennials?
Our study found that investor relations and corporate advertising (43% and 42%, respectively) are the top activities that financial brands have implemented to address negative perceptions with external audiences, such as customers, investors and suppliers, and they were also rated the most effective, 93% and 92% respectively.
Most executives say new strategies to communicate directly with clients or customers are expected to have a positive impact on reputation. Use of social media is one way financial brands communicate with external audiences and the top benefits reported were increased awareness (18%) and more positive media coverage (17%). Surprisingly, almost as many (16%) reported that social media had no benefits. As noted above Millennials tend to get information and validation for an idea or decision from many sources online and within their social community. Financial brands needs to start seeing more opportunity in social media, rather than the risk and regulation associated with it.
Financial brands can move forward telling stories about how their work helps communities and individuals and their families. Some brands have conducted economic impact studies to show their importance in the overall economy drilling down to issues that consumers care about like jobs and the sustainability of their local communities. Others have enlisted their employees and made them ambassadors for their brands through community activities. Think organic CSR. For Millennials, the winning brands will be the ones that address their unique situations and desires with specially designed products and services.
What are the financial consequences of a communication gap between banks and young consumers? Why haven’t the communication programs from these companies been very effective in changing internal or external perceptions for their brands?
A communications gap equals a perception gap. Nearly half -- 44% -- of financial services companies we surveyed reported they lost 5% or more business in the past 12 months due to ongoing reputation or negative perception and customer satisfaction issues. Losses based on total sales of these companies are estimated at hundreds of millions of dollars. There was an average loss of 9% of business among all companies surveyed.
This is critical when it comes to millennials as this group is larger than the Baby Boomers and when it comes to wealth transfer they are expected to inherit more than $30 Trillion in the future. One thing that makes banks, financial advisors and brokerage firms very nervous is money changing hands because it usually doesn’t stay. A disconnect with Millennials puts financial brands at a great disadvantage and potentially missing the boat.
What is interesting is 56% of financial services marketing and communications executives admitted to us that their company’s communications and marketing programs have only been somewhat effective in changing external and internal perceptions of their company.
In just one year we have seen a dramatic shift in what companies say is weighing down on their reputation and the ability to restore it. Today, public perception and management actions are key, whereas a year ago it was operational issues and market challenges impacting the standing of these companies. Coming up with the right marketing mix and content, especially for an important generation that you don’t understand that well, complicates matters even more. The next innovation will be for financial brands to spin off units dedicated to serving Millennials as they go through the financial milestones of their lives and more innovations and breakthrough partnerships in technology and mobile financial services.