Trust and the financial adviser: an examination of environmental trust

While research has called for investigating the drivers, antecedents, and predictors of trust (Grayson et al., 2008; Nienaber et al., 2014; Sekhon et al., 2014), no research has empirically identified and discussed the factors that drive environmental trust and the impact of such trust upon interpersonal trust. Guided by agency theory (Eisenhardt, 1989) and institutional theory (Grayson et al., 2008; Scott, 2014), the first goal of this research is to identify the role of the two sub-components of environmental trust (structural assurance and situational normality) in predicting interpersonal trust (trusting beliefs and the intention to use a particular financial adviser) in the context of the UK financial advice industry. The second goal is to identify the predictors of environmental trust, more specifically, those of structural assurance and situational normality. The third goal is to determine the impact that demographic factors like gender, age, income, and occupation may have on trust, including environmental trust, by developing a conceptual model for environmental trust that extends our knowledge about this subject and closes a gap in the academic literature. Finally, this research provides insights into the role that environmental trust and its predictors play in the development of consumer trust, thereby assisting managers and policy-makers in developing the business practices and policies that foster trust. The UK financial advice industry is the context for this research; trust has been shown to be central in the relationship between consumers and their financial advisers, as many consumers base their decisions about purchases on their trust in their financial advisers (McKechnie, 1992). The loss of consumer trust in the wider financial services industry that occurred after the events of 2008 and other scandals, such as PPI mis-selling, (Uslaner, 2010) is an additional motivation for this research. Two phases of empirical research are undertaken to achieve the goals of the research. Firstly,a qualitative phase of research used focus groups and in-depth interviews (n=23 participants in total) to identify and confirm the predictors of environmental trust. The predictors that emerged included regulation of consumer and data protection, self-regulation, the organisation’s size, guarantees and warranties, prior experience, and prior knowledge of the industry. Findings from the qualitative phase helped to refine the conceptual model. The second phase of the empirical research tested the conceptual model quantitatively using an online questionnaire (n=302). This mixed, two-phase approach is common in academic marketing research into a largely unresearched area (Harrison and Reilly, 2011). The effect that the demographic factors of gender, age, educational attainment, income, and occupation have on the predictors of environmental trust are also examined. This research contributes to theory and knowledge by providing a thorough analysis of environmental trust in the context of the financial advice industry. This research:  develops and tests a conceptual model of environmental trust in the context of the relationship between a UK consumer and his or her financial adviser that demonstrates the impact of such trust on consumer’s trusting beliefs and intentions; vi  identifies predictors of the two sub-components of environmental trust, structural assurance and situational normality; and  examines and identifies the impact of the demographic factors of gender, age,education, income, and occupation on environmental trust. Therefore, this research extends the limited research on environmental trust by developing it in the context of the relationship between UK consumers and their financial advisers. It is also the first study to identify the predictors of environmental trust empirically and to examine empirically the effect of demographic factors on environmental trust. Several findings can be drawn from this research, including:  that structural assurance has a greater impact on consumer trusting beliefs and intentions than situational normality does;  that, amongst other factors, statutory regulation and self-regulation play roles in fostering structural assurance;  that, amongst other factors, some consumers expect the presence of a well-known brand, so the presence of such a brand can foster situational normality;  that, among the demographic factors examined, only gender has a significant impact; and  that the design of financial service providers’ business premises should reflect consumers’ needs for privacy, confidentiality, and data security so trust can develop. This research also provides a theoretical underpinning for environmental trust by demonstrating that environmental trust is a product of an interaction between agency theory and institutional theory, thereby extending the academic literature. The findings of this research also lead to practical recommendations for managers in the financial advice industry and policy-makers who are charged with ensuring the effective regulation of the industry. For industry managers, these recommendations include taking steps to reassure consumers regarding confidentiality by providing private meeting rooms and implementing a strict clear-desk policy, and to reassure them of their commitment to protecting their best interests by communicating their adherence to consumer- and data protection-related regulation. For policy-makers, these recommendations include improving the effectiveness of communication, as many consumers lack knowledge about the safeguards regulations offer, and about the superior effect of solutions that are based on statutory regulation in reassuring consumers following a trust-related industry crisis, compared to a solution that is based on self-regulation, given the scepticism many consumers have about self-regulation.