What may lead to a loss of trust between Swiss family offices and Swiss financial institutions and how it may be restored.
Let us begin with a real-life case study right away.
A Swiss multi-family office service provider had been doing business with their Swiss «house bank» for around 20 years. This bank knew all the clients of the multi-family office and had the relevant documents on file as required by the Swiss Anti-Money Laundering Act.
In 2017, the stable and competent team was promoted to a higher position within the bank – and a new team was appointed without being briefed on the needs of the multi-family office. As a result, timeliness of services and open communication suffered. The new team at the bank did not recognise that these two trust antecedents would have a strong impact on their own trustworthiness and that of their employer.
And where did this lack of perceived competence, decisional authority of the new team, transparent communication, benevolence and timely service of the bank finally lead? Exactly, it resulted in the Swiss multi-family office authorising the transfer of all its clients’ financial assets and the closure of all accounts with this particular bank.
It does sound simple, even though the impact is strong: The bank missed the opportunity of implementing a trust restoration strategy. They simply «did not read the sign» when the multi-family office made its first complaint and no longer were the house bank of an important client relationship because of this important management error.
«The management of tension between the need for a timely response and the time to ensure due process is often underestimated and not communicated adequately to the client», said Dr. Roderik J. P. Strobl, at the time Relationship Manager Key Clients of Leo Trust Switzerland.
Assets belonging to Swiss family offices (FOs) have been one of the growing segments for private banks in the past decade. Swiss banks propagate client-centric and value-creation advisory services, such as exclusive bespoke solutions with the aim of becoming the ‘house bank’ of these FOs. [1] However, studies indicate that there are different understandings of client centricity and key factors that influence trust in such banking relationships. The studies also show that trust in banks has suffered considerably since the global financial crisis in 2007/2008, due to mismanagement. [2, 3]
This difference in conceptualisation of client centricity between Swiss FOs and banks may be one of the reasons leading to an important depletion of trust in such delicate business relationships, simply because the expectations of the FO are not adequately met. The consequence of such situations is the necessity of adopting strategies of trust repair if the aim of both parties is to have a continued business relationship. This aspect of trust in an interpersonal dyadic business relationship is further explored below.
There are more than 70 academic definitions of the concept of trust, [4] which vary in accordance with the focus of the respective scholarly discipline. One definition is frequently cited for the purposes of this article: ‘trust is a psychological state comprising the intention to accept vulnerability based on the positive expectations of the intentions or behaviour of another’. [5]
There are different types of trust, such as basic and active trust, that require continuous reconfirmation of their status based on previous interactions. [6] Trust is a key concept in relational exchange and is an important construct catalyst in many transactional relationships. [7]
‘Trust is a non-material asset on which material success depends’ [8]
Several marketing relationship studies have found that trust leads to longer, more stable business relationships, [9] which is what a bank would strategically need to aim for if it were to become the ‘house bank’ of any FO.
It is important to note that trust is not discussed here in terms of equities law and involves the process of the trustor trusting the trustee, whereas trustworthiness is a quality pertinent to the trustee, [10] indicating that both are different constructs. [11] Trustworthiness, which includes the attributes of ability, benevolence and integrity of the trustee, [12] is a strong predictor for a trustor’s decision to trust. [13]
There are many antecedents or key factors of trust, which are preceding conditions or events that can potentially influence trust, such as the attributes mentioned above: predictability, reputation, consistency, service quality, timeliness and so on. [14] Each antecedent can have a different impact on trust, depending on the context. Trust researchers, who are familiar with these complex intricacies, can be of valuable assistance in the process of trust restoration.
In the five-stage trust lifecycle, typically consisting of the acquaintance, build-up, continuation, deterioration and termination phases, the restoration of trust often becomes crucial during the continuation and deterioration phases. In these two phases, damaged trust can still be salvaged and the consequences of doing nothing may be detrimental to the business relationship. Studies indicate that broken trust can be restored and that the outcome depends on the response and actions of the violator. [15] Regulation can support the restoration and enhancement of trust. [16] Trust restoration requires the implementation of a systemic framework at all organisational levels, which can be costly. [17]
Restoring trust is a process that involves at least four stages and requires time for due processing. [18]
In stage one, an immediate response is made in respect to the incident. Regret is expressed, an investigation is communicated by the bank to the FO and resources are committed to prevent future reoccurrence.
In stage two, the critical incidents that led to the disruption of trust and the steps that are necessary to restore trust are reviewed.
In stage three, reforming interventions of trust, such as the implementation of controls, acknowledgement of responsibility, suspending involved employees and offers of reparations, are proposed to the FO.
Finally, in stage four, a regular evaluation that assesses the progress and effectiveness of the interventions is undertaken between the FO and the bank. In all stages, accuracy, timeliness and transparency, which are also antecedents of trust, are critical to supporting a positive outcome. [19] Inaction, in respect to a lack of immediate response, can be very damaging.
‘Trust restoration is a critical management competency and can assist in repairing the trustworthiness of a bank if actioned in a timely manner’
The process of trust restoration must be actioned early. It is lengthy, delicate, uncertain and resource-intensive. Trust restoration is a critical management competency and can assist in repairing the trustworthiness of a bank if actioned in a timely manner. The management of tension between the need for a timely response and the time to ensure due process is often underestimated and not communicated adequately to the client. The intent of rebuilding trust alone is insufficient for restoring trust. Specific action must be implemented and communicated regularly to the FO in question. Reducing the disconnection between the FO’s needs and the strategic goals of the bank ensures that the relationship manager provides objective expertise with trust-based value added to the end customer.
What is the issue? Swiss family offices (FOs) often have a different understanding of client centricity compared to Swiss financial institutions, which may lead to a loss of trust and trustworthiness in a bank.
What does it mean for me? Identifying relevant trust antecedents important to confidence in business relationships is a management competence and likely to enhance the sustainability of an FO’s relationship with its banks.
What can I take away? A trust restoration strategy is best actioned the moment trust has been compromised and must be communicated openly to the violated party to be effective.
This article was written by Dr Roderik J. P. Strobl, TEP, at the time a Relationship Manager at Leo Trust Switzerland in Zurich. His doctoral research at the University of Southern Queensland examined the key factors that influence trust in Swiss family office banking relationships.
This article is aimed at providing a general overview and summary of the issue. It is non-binding, and does not and should not be taken to constitute legal advice.
At Leo Trust’s special event, special investigator of the Kantonspolizei Zürich, Adrian Leuzinger, appeared in front of a «full house». The deputy head of the task force did not, of course, go into the tactical and technical procedures of the police, but nevertheless revealed a great deal.
Leo Trust Switzerland AG is a globally active financial services provider for 40 years, offering a variety of services for institutional and private clients. However, the business is changing. On the one hand, due to constantly changing regulatory standards and laws; on the other hand, due to digitalisation, globalisation and highly specific client expectations.
