Since the Royal Commission Final Report and throughout the hearings Commissioner Hayne has repeatedly come back to two connected areas: remuneration and culture. The inwardly focused remuneration schemes that prioritised sales and profit over customer benefit have caused a great many of the sector’s systematic problems and created a ‘win at all costs’ culture. So what can they do now?
We see four key factors that summarise the journey to the situation we now find ourselves in:
In case you need some evidence that things need to change
Some suggestions as to how the financial services industry can respond
First and foremost, there must be a united front. What’s needed is a true and authentic commitment from the entire industry to work towards rebuilding consumer trust. A collective action and a collective promise made, shared and then kept. Admittedly much easier said, than done.
The industry would benefit from an entirely new approach, a new norm to be created where customer centricity is the key focus – in the knowledge that from truly satisfied customers profit will prevail, and shareholder returns will come. A new focus on serving and improving the lives of customers will prove they can be profitable and trustworthy at the same time.
Again, very idealistic, but that is how dramatic the shift needs to be. An institution that can put its customers first, can have a broader purpose, can nurture and create a new and positive culture. One that focusses on delivering for customers and that isn’t all about internal remuneration.
The regulator and the Government also has a role to play, through ongoing relaxation around regulation and licensing allowing greater levels of competition in the industry. This will force the major players to be fairer and more responsive to their customers’ needs. We are already seeing new entrants and disruptors joining the market including neo and fintech banks, like Volt and 86400.
The regulator also needs greater resourcing and financial resourcing, so it can stand up to the fiscal might that exists in some of Australia’s wealthiest companies. The regulator could also lead a new shared vision, code of practice and industry wide charter to create shared value for a much wider group of consumers, investors, and the broader community. It could also lead an entire industry wide – as well as individual focus – around remuneration structures and incentive schemes. This needs to fundamentally consider the link between quantitative sales targets and compensation, to minimise misconduct and help individuals ensure that they prioritise the meeting of customer’s needs.
Some suggestions and guidance around culture
A key to success is recognising that organisational culture is constantly evolving. Embedding culture, reinforcing the right behaviours and aligning conduct and risk management practices need to be an ongoing and everyday practice within everyday business. We need to ensure over time that complacency does not creep back in when this moves from the headlines.
As always, leadership matters. Senior leadership must embed conduct and culture messages and expectations from the top down, and from middle management through to customer facing staff. Measures must be in place around how all levels of employees are trained, promoted, supported and measured.
Finally, at an individual brand level – it all comes down to purpose
Financial services brand research highlights the need to start with the biggest piece in the complex world of brand – vision. A reason to exist, a reason to get up out of bed, to serve customers. A vision that is compelling and drives a positive internal culture, doesn’t matter if you’re B2B or B2C. A focus on culture that serves and encourages the appropriate behaviours through every strata of the organisation – including middle management and especially client facing staff. For financial services brands that means creating a vision that creates buy in from all employees to say ‘hey, we are here for a broader purpose than simply profit’ – we must be here to do more than just create value for ourselves and for our shareholders.
Is the industry up for this level of change? Well, the jury is still out on this. However, there are already positive signs. The disposing of wealth and insurance businesses and other potential conflicts of interest, together with a renewed focus on their core functions should see the capacity to drive new and better outcomes for customers. This includes being far more sensitive to customers human needs.
In summary, this is a complex and daunting task for the industry and the individual brands, including Westpac, Nab, AMP and Commonwealth Bank. Simultaneously they have to re-build trust, along with managing new digital entrants, evolving customer needs, market expectations and overall competitive pressures.
For financial services brands, it is time to listen, learn and act. With significant rewards for customers, for brands and shareholders. In terms of a make or break moment for the industry, it feels like this is the moment to take positive action. If not now, when?