Some household-name banks and full-service brokerages struggle with customer advocacy, while credit unions and insurance firms connect with consumers.
Posted May 26, 2006
Financial services companies, in a saturated industry, must look to the customer experience as a competitive differentiator. But according to Forrester Research's "Customer Advocacy 2006: How Consumers Rate Their Banks, Brokerages, and Insurers," based on a survey of 5,000 financial services consumers, some of the largest and best-known financial services firms received the poorest customer advocacy ratings. Forrester defines customer advocacy as consumer perception that their financial services firm does what's best for its customers, not just the firm's own bottom line.
Like last year JP Morgan Chase and Citibank received the lowest ratings, earning scores of 18 percent and 19 percent. In fact, six of the seven lowest-scoring firms are large banks like Bank of America (30 percent), Wells Fargo (32 percent), and Washington Mutual (33 percent), according to the report.
There are two major culprits responsible for poor customer advocacy rankings among large banks, according to Bruce Temkin, vice president and practice director of financial services at Forrester and report coauthor. "It's hard to be everything to everybody, and a lot of the big banks have spent most of their time over the last view years focusing on their M&A strategy," he says.
Temkin adds that the latter leads to complications in customer relationships as companies work to align products, systems, and operating models, diverting attention away from individual customers. "With all that focus on M&As, there hasn't been enough focus at the large banks on the individual customers, but we see that changing," he says. "There will still be some M&A activity, but the focus of their strategy will be less and less on M&A and more and more on going after the satisfaction and sales to each individual customer."
Rounding out the bottom 11 are National City (23 percent), Morgan Stanley (29 percent), Merrill Lynch and Smith Barney (both with 34 percent), and New York Life and Charles Schwab (each with 35 percent).
Brokerage firm Edward Jones earned a slot in the top 10 with 51 percent and direct firm E*TRADE (37 percent) is the only brokerage to significantly increase its customer advocacy rank, but some of other the brokerage firms suffered serious hits. Morgan Stanley, Merrill Lynch, Wachovia Securities (40 percent), and A.G. Edwards (42 percent) all fell by more than 6 percent in the past year, according to the ratings. "The full-service brokerage model is under attack," Temkin says, noting that direct brokers like Fidelity (42 percent) are "exposing the pricing of the full service brokers and replicating some of the models." These brokerage firms landed in the middle 11 along with Charles Schwab, Wachovia Bank (36 percent), Prudential Insurance (40 percent), A.G. Edwards, Ameriprise, and Fidelity (each with 42 percent), Travelers, AIG, and MetLife (each with 46 percent), and Nationwide (48 percent).
There is a silver lining, though. Although USAA's score tumbled by more than 6 percent in the past year, its 68 percent rating was enough to secure the top spot, trailed closely by credit unions with 67 percent. Credit unions have a more homogenous audience than other financial services providers, which can help them design services that more tightly meet the needs of its members, according to Temkin. "Members of credit unions feel like they belong to something as opposed to customers of banks who just view banks as a separate entity," he says.
Rounding out the top 10 are GEICO and AAA, both with 59 percent; State Farm and Vanguard, tied with 55 percent; Progressive (52 percent); Edward Jones; and Safeco and Allstate, both tallying 50 percent. In fact, the property and casualty (P&C) sector rated the highest. "P&C companies have fairly simple products and are easy to price and compare, so they don't run into the complexity problems that brokerages and banks run into."
To improve customer advocacy efforts, Temkin suggests an oft-trumpeted strategy: Focus on the customer first. "It comes down to turning the focus from inward out to outward in."
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