The role of intermediaries within trust rebuilding after financial crisis and encouraging implications for the existence of ‘calculative trust’

Abstract

The collapse of Lehman Brothers seriously damaged trust in financial institutions and markets: The financial markets’ crisis became a trust crisis, with its decline affecting general confidence in banks, bankers and financial markets. Accordingly, it has become necessary to undertake research into the investment decision, looking specifically at trust and how it can be rebuilt. There is strong evidence for trust's importance in investment decisions and the investment advisory industry generally, with banks’ advice to investors playing an important role within the overall decision-making process. When investment decisions ultimately turn out to be wrong, trust in advisors clearly becomes seriously damaged. This article explains why trust in financial markets is closely connected with trust in intermediaries: The model of intermediaries in trust developed by James S. Coleman is transferred to bankers offering their customers investment advice, confirming the requirement for trust in investment. Further insights concern the question of why trust is damaged when investment decisions turn out badly and in overcoming the financial crisis, why intermediaries are crucial components in the trust repair process. Ultimately, a financial crisis which becomes a serious trust crisis implies that, contrary to assumptions in standard neoclassical models, the irrelevance of trust can no longer be defended. Furthermore, this means that ‘calculative trust’ does actually exist.