As the public hearings of the Banking Royal Commission conclude, and the level of consumer distrust can be seen to rise, we ask what financial services brands can do to survive in the future? What will consumers demand of them? What can they do to start rebuilding relationships with their clients?
BrandMatters' Managing Director, Paul Nelson, provides his insight into how financial services brands need to consider their next 12 months.
What factors led to the current environment in the financial services sector?
In hindsight, the reasons why this occurred become obvious:
- a consistent market and media focus on market performance and shareholder returns
- a protected market with little competition and almost insurmountable barriers to entry
- a highly sophisticated sales infrastructure, with short-term incentives, layered right through the organisation
- an under-resourced and slightly intimidated regulator – ill-equipped to detect or handle the sheer scale and number of scandals that have occurred over the decades.
At the heart of it all, has been a culture of self-preservation (either market or personal returns, or both) at the expense of the individual customer or client. It has taken some time for the Commission to delve into how deep this all goes.
Looking back on the timeline, it was as early as 2008 when Jeff Morris first blew the whistle on a CBA financial planner who was clearly taking advantage of several elderly and vulnerable clients. This was only scratching the surface of the scandals that were about to appear. Even the regulator ASIC was brought into the spotlight in 2014 when in a series of investigations by Fairfax Media and Four Corners further uncovered facts that ASIC had failed to act on several whistleblower complaints – it was this scandal that then led to the Senate inquiry.
With the Senate recommending a Royal Commission into Australia’s banking and financial services industry, it was clear there was the potential to uncover misconduct in an industry deemed as one of the most trusted – the one that manages and controls our money, our superannuation funds, our hard-earned investments and life savings.
So, as the hearings continue, and more truths are revealed, it appears that the customer and their needs have become very much sidelined. The main game has been played at the customer’s expense as the industry’s profits, bonuses and shareholder returns kept soaring. The focus on risk management, was around risk to future revenues including incentive schemes and remuneration structures rather than protecting customers.
Throughout the entire 70 or so days, the commission has repeatedly come back to two connected areas: remuneration and culture.
There is widespread agreement that inwardly focused remuneration schemes that prioritised sales and profit over customer benefit, have caused a great many of the sectors problems, and created a ‘win at all costs’ culture.
What will consumers demand of FS brands in the future?
In the past 6 months since the Royal Commission commenced, consumer satisfaction ratings with banks has dropped from 81.2% to 78% as reported by Roy Morgan. A 4% drop doesn’t seem so bad and would indicate that the clear majority of customers are still relatively satisfied with their bank. However, it is important to note that this is the lowest satisfaction rating banks have seen in more than seven years. Are customers resilient or feeling completely disempowered across the whole situation?
In terms of what consumers are expecting or will demand from FS brands, in this situation, it certainly needs much more than just an official mass produced letter from the corporate communications team, or a press release issuing an apology. There needs to be fundamental evidence of change, including a meaningful change in the business model and evidence of positive brand values.
The top 10 brands consumers trust in Australia at the moment do not include the top 4 banks – ING and Bendigo Bank are the only brands from the financial services industry to make the list.
There is no doubt that trust in brand is difficult to earn, very easily lost and once lost even more difficult to regain.
As inconvenient as it might be, a recent report indicated that 1.3 million Australians are considering opening new bank accounts in the next 6 months – so there is no room for complacency by any of the banking brands. Brands in other sectors are demonstrating customer service excellence. FS brands can learn from other industries and put technology and transparency first.
What immediate and long terms changes need to occur for the industry and the industry’s brands to move forward in future?
First and foremost, there must be a united front. A true 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.
What’s needed is 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 their customers will prove they can be profitable and trustworthy at the same time.
Again, you may think this sounds very idealistic, but that is how dramatic the shift needs to be – a bank 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.
This needs to be a significant transformational change that creates a culture of putting customers first.
For financial service organisations, this needs to be a massive cultural shift. One that is driven both from the top down and the bottom up. And a new employee value proposition is needed to bring meaningful purpose back into the equation.
It needs to be everyone’s responsibility. Gail Kelly, former Westpac CEO reflected on her time stating, “I wish I’d done more personally to identify some elements of poor practice. You can no longer look at averages and make assumptions. You need to look into the detail, at the entire bell curve, particularly at the areas that have gone really wrong, where the most vulnerable are being impacted, and learn from that.”
A deeper understanding of the issues would enable both policy and behavioural change with reforms which need to be communicated to all stakeholders in order to achieve the desired outcomes.
In the recently released G30 Report on Banking Conduct and Culture, titled BANKING CONDUCT AND CULTURE A Permanent Mindset Change, of which Ms Kelly co-chaired, many additional recommendations can be found, within the Executive Summary and throughout the entire report. There are a great many observations in the report together with 12 separate recommendations.
From a far more personal point of view, we suggest a few immediate changes and recommendations that would bring about positive change which include:
- Ongoing relaxation around regulation and licensing allowing a greater level 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 entering the market including neo and fintech banks. ING seem to be leading the way in putting the customer first, and they are being rewarded for it. Obviously appropriate regulatory oversight of this expansion goes without saying.
- In terms of the official regulator – change needs to occur, including resourcing – but beyond that what the new form or system of regulation will look like, remains to be seen.
- A new shared vision and code of practice to create shared value for a much wider group of consumers, investors, and the broader community.
- An entire industry-wide, as well as an 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 meeting customer needs.
- A new code of conduct, or an industry-wide charter. Clearly, it will be very difficult to align competing interests, businesses and brands, but if not now, with this burning platform, then when?
Finally, FS brands need to start with the biggest piece in the complex world of brand – and that is a vision. A reason to exist, a reason to get up out of bed, to serve customers and do what you do. A vision that is compelling and drives a positive internal culture. 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 shareholders.
Is the industry up for this level of change? Well, the jury is still out on this. However, there are already signs of change. 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.
For financial services brands - it is time to listen, learn and act. We believe the time is right for change. With significant rewards for customers, for brands and shareholders. In terms of a make or break moment for FS brands – it feels like this is the moment to take positive action. Be bold, make the first move.