The Dodd-Frank Act put in place to avoid another financial crisis celebrates its third anniversary later this month, but 68% of financial services firms say that their industry is now riskier or just as risky as it was in 2007.
This is a major finding of the 2013 Makovsky Wall Street Reputation Study, designed to determine the state of reputation of the financial industry and identify best practices and emerging trends.
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"Despite Dodd-Frank and other federal reforms, communications and marketing executives at financial services companies believe that risk has actually increased on Wall Street compared to the headier and perilous days of six years ago," said Scott Tangney, executive vice president at Makovsky.
"They also told us that the perception of unchecked risk is dragging on their company’s and the industry’s reputation, with a clear negative impact on profitability. It is clear that reputation is caught in the middle of the tug-of-war between risk and regulation," Tangney added.
The Makovsky study found that financial services companies lost an average of 9% in business in the past 12 months due to reputation and customer satisfaction issues.
Tangney added that, "While a lot of the discussion and worry about new reforms have focused on the restriction of business and its impact on profits, no one is addressing its bottom-line impact of continued reputation damage."
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By GlobalDataAccording to the study, an increase in action and tougher stances by regulators mean more pain and a longer road to recovery for the industry.
66% of executives agreed 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 the financial services industry, but just as many reported these actions have had a negative impact on reputation or no impact at all.
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.
The study revealed that the majority of companies (62%) have made changes in the past year to their governance policies and management to enhance oversight and prevent another financial crisis. When asked if they have worked with federal regulators to develop new rules and guidelines to prevent another crisis, 53% of companies reported they have.
Executive compensation issues remain a major reputation risk in the financial services industry. About two-thirds (65%) of executives 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.
