Bagel Tuesday - Fresh ideas. Toasted opinions.

With the markets in recovery mode and the recent financial crisis becoming a distant memory, it seems like a good time to reflect on what we’ve learned, if anything.

As I dug a bit deeper on the topic of “lessons from the financial crisis,” which only returned about 40 million results, the idea of rebuilding trust came up more than a few times.  I then stumbled upon a presentation that I think offers some interesting perspectives on the topic.

Titled simply “Trust,” the author, Justin Basini, argues that trust building begins with managing risk and clearly communicating them as opposed to marketing products and services benefits.

It sounds simple enough, but it’s actually a fairly radical idea given the investment industry’s historical focus on product benefits, as opposed to managing risks, expectations and discovery of clients’ needs and objectives. 

To clarify, Justin is not saying that the industry shouldn’t discuss benefits.  He’s simply saying that there needs to be a more balanced approach to communicating benefits, as well as risks and expectations in a clear and simple way.

Unfortunately, this tendency to focus on benefits, as opposed to risks, was amplified during the recent economic crisis. 

Most crises’ start with a mistake, and either move into the social conscience as a conspiracy or incompetence.  For the entire investment industry, public perception moved directly from crisis to incompetence due to the complexity of the issue and the belief that business leaders simply didn’t manage risk appropriately or didn’t realize what they were getting into.

Top-down communications don’t work right now

The question then becomes, how do you deal with it?  Many firms continue to apply a “top-down” approach to communications.  Meaning, the CEO or spokesperson comes out with the corporate approved message.  The age of top-down communications, however, is dead (at least for the time being).  Messages now flow through numerous and sometimes unexpected channels.  As a result, marketing and corporate communications need to adapt.

You must empower and arm your entire company with the right messages for partners and consumers.  This is critical because society doesn’t trust the face of corporate America – the CEO.  They’re more likely, however, to trust their peers. 

What this also means is that for the time being, the trust challenge is not solved by differentiation but rather by whom and how your message is delivered. 

Making a difference and finding what you truly believe

Companies and the entire industry also need to prove to distribution partners and investors that they’re worthy of trust.  One of the ways you can do this is by recognizing and communicating what your role is in the global economy and what your responsibility is to your community and to people’s lives. 

In other words, how do you make a difference as opposed to how are you better or different?

It sounds risky, especially given the negative market environment we’ve just experienced, and finding that right message can be difficult, but in reading another interesting post by Steve Gardner, President of Gardner Nelson + Partners it’s clear that the companies that are willing to communicate what they really believe, no matter what the market environment, will be rewarded in the long run.

P.S. As this post was publishing I received an email about John Hancock’s new “Trust” campaign.  The ads are aimed at stressing the importance of trusted advisors with one boasting, “People don’t trust the market.  People don’t trust the economy.  People don’t trust the government. But you, they trust.” 

Seems we were thinking along the same lines.

Normally an economics blogger, Felix Salmon took a detour into marketing the other day and discovered a basic truth about sophisticated products like coffee and wine:

The more you know about your beverage, the better it tastes. That’s why so many wineries put so much effort into wine tours and that’s why you’re much more likely to enjoy your bottle of pinot noir if it has been preceded by a short explanation from the sommelier of who the winemaker is, where they’re from and what exactly they’re doing. There’s really no way of telling how or whether any particular part of the story affects the taste, but the simple telling of the story makes an enormous difference.

Felix was talking about the incredible details you get nowadays from coffee roasters and winemakers. Not just where the grapes or coffee beans were grown, but what temperature they were picked or roasted at, how they were processed and even what they were stored in.

I guess you know where I'm heading with this. The same is true with asset management and other sophisticated products and services. How an analyst goes the extra mile to pick up a golden nugget of information. How a portfolio manager sifts through thousands of companies to find a stock that will beat the benchmark. How a chief risk officer scrutinizes every portfolio to protect investors' hard-earned savings.

Are these stories really relevant? Who knows. But they create a comfort level for the investor or advisor, and build an emotional connection between product and purchaser that forms the basis of a successful brand. As Felix says, "The more you know, the better it tastes."