Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, November 12, 1995 TAG: 9511100036
SECTION: BUSINESS PAGE: F1 EDITION: METRO
SOURCE: MAG POFF
DATELINE: LENGTH: Long
Even more astoundingly, 22 percent of people think that mutual funds purchased at a stock brokerage house are FDIC insured. So the perception problem is not exclusive to banks.
The FDIC is a government agency, created after Depression-era bank losses, to guarantee deposits in member banks. Banks pay for the insurance, based on the size of their deposits. In Virginia, all banks must carry insurance on their accounts.
The misperceptions about the agency insuring securities were reported in a poll conducted by the Gallup Organization of Princeton, N.J., and distributed last month at the annual convention of the American Bankers Association, which commissioned it.
Bayne Northern, senior vice president and director of marketing for Crestar Securities Corp. in Richmond, said "we go to great lengths" to make certain that customers know their mutual fund purchases are uninsured.
A sign on the desk of the salesperson outlines the risks, she said, including lack of a guarantee by the bank and the FDIC. Salespeople wear signs identifying them as employees of the securities company rather than of Crestar Bank.
The salesperson also makes a verbal disclosure, Northern said, and customers must sign a form stating that they understand the risks of mutual funds.
Lest the salesperson fall down on the job, she said, the company uses a "mystery shopper" who rates every employee at least once a year.
But the FDIC misunderstanding was not the only surprising opinion uncovered in the Gallup research.
Only three out of four people questioned said they knew that banks are owned by private stockholders. The other 25 percent of those polled erroneously believed that banks are owned by customers or the government - or they just plain didn't know.
About half of the respondents thought that bank interest rates are set by the Federal Reserve rather than by the banks themselves. While not strictly true, this opinion is understandable given that the prime rate and other key interest rates generally change when the Fed moves rates that it controls to govern the money supply.
FDIC insurance is another area of misperception. Almost four out of 10 people believe, incorrectly, that taxpayers pay for this insurance. This was especially true of people younger than 35.
Only 16 percent understood that the banks themselves pay for FDIC insurance, although 38 percent were not so far off the mark when they said bank customers finance the fund. The insurance premiums, of course, are a cost of doing business that customers ultimately must pay.
Eight out of 10 customers said banks are their primary financial institutions, while about 10 percent each dealt with credit unions and thrifts.
The most frequently mentioned factor in choosing a financial institution was convenience, cited by 39 percent of those questioned. Other important spurs were good service (19 percent) and a longstanding relationship, mentioned by 14 percent.
The survey found that only 11 percent of the people questioned said they were motivated in choosing a financial institution by its interest rates.
Asked if they had changed, or considered changing, their banks, one in five answered in the affirmative. This was particularly true of those under the age of 35, with college degrees and with higher household incomes.
Their reasons, in order, were poor customer service by the bank, their own move to a new home, and the bank's service charges, all around 18 percent. Next came interest rates and convenience.
Only 4 percent said they would change banks because of a takeover or merger.
Despite the large minority who would switch banks, two-thirds of the study participants said they were "very satisfied" with their banks, with most of the remaining third being "somewhat satisfied."
Satisfaction increased with age and decreased with education. Women were happier with their financial institutions than were men. Satisfaction was also region-specific, with those in the Northeast being the most dissatisfied and those in the South the least.
Asked for their sources of information about banks, 74 percent said it came from friends, relatives and co-workers. Among young people, this jumped to 96 percent. The media, advertising and consumer groups came in significantly lower as sources of information, the ABA said, suggesting that "negative impressions of banks are not simply a reflection of a bad press."
Of people who have applied for a bank loan, 41 percent found the process to be "somewhat" or "very" difficult. This opinion remained the same across all income groups, although younger people reported a relatively harder time.
"Given the many well-publicized attacks on bank fees by consumer groups," the ABA said, ``it may seem surprising that almost half of the bank customers surveyed said they thought fees for checking and other services were `appropriate.''' Percentages increased slightly with age and education, and more so with increasing income.
Of those who felt fees were appropriate, many cited the fact that banks are for-profit businesses that must cover their costs.
Of the 52 percent who felt that fees were inappropriate, the reasons cited were that banks charge too much already and "it's my money."
But customers were very specific about fees.
The survey posed this scenario: "Person A writes a check to person B, who deposits the check at the bank. The check bounces."
Eight out of 10 people said it was "very" appropriate to charge a fee to person A. However, nine out of 10 said it was "not at all appropriate" to charge a fee to person B.
Relatively small numbers of people supported charging fees for using another bank's automated teller machine or charging fees when a customer's checking account falls below a certain level.
Eighty-six percent agreed (33 percent "strongly" and 53 percent "somewhat") that, considering the fees, banking is a good value for the money.
Noting that only a third felt "strongly" about the value, the ABA said most companies would want higher customer satisfaction. "In sum," the ABA said, "fee structure clearly is a sensitive customer issue for banks, with a lot of upside and downside marketing potential and image potential."
Very large majorities agreed that a healthy banking system means a strong nation and that banks play an important role in creating jobs. Ninety-eight percent said that banks are necessary, the most often-cited reason being that banks are a secure place to keep money.
But only 31 percent of respondents "strongly agreed" that bankers cared about their communities.
This would seem to fly in the face of obvious community involvement by banks in sponsoring everything from plays and concerts to marathons. They conduct workshops for home buyers, sponsor classes in managing money and form partnerships with schools.
But a supplementary study by Gallup, using focus groups to discuss the issues, found that customers are well aware of this community effort. These people said that such sponsorship is really just a form of advertising and doesn't meet the definition of true community involvement.
On the other hand, the ABA said, very few of the focus group participants could offer substantive and specific ways that banks could actually get involved in the community.
Perhaps, the ABA said, people see banks more as businesses than as community partners. This could be a problem of perception shared by all businesses.
by CNB