Over the last decade, banks, and other financial institutions have spent billions, I have no idea how many, but guess multiples, on telling us they are our friends, there for us, reliable, trustworthy, yada, yada, yada.
That investment has gone.
Poof.
Billions gone in a puff of Royal Commission smoke.
Then the stinky smell of the smoke is intensified by the APRA report into the CBA, released on April 30th, which is critical of the internal management and governance of the CBA. While the CBA has been in APRA’s gun, there is now no reason to believe that the others are not similarly tainted. Just look at that doyen of financial rectitude, AMP for evidence of that.
I am not sure how much we all knew before all this came about, as most of us seemed to know at some level we were being screwed by the financial institutions, but the extent has come as a surprise, even to the most cynical amongst us.
If the boards of all financial institutions are not deeply concerned with these issues, they should be, in fact I would contend they are not doing their job if they are not.
Which opens two key questions:
- How they can possibly recover the trust of their customers and the community?
- In the absence of that trust, what alternatives do we as customers have?
So what is it that the financial institutions need to do to earn back our trust, and once earned, keep it. Trust has to be earned, it is never just given.
- Transparency. Until we are able to see all the squalid details of the financial business model, be able to make informed choices, and have the current bunch of directors acknowledge their individual and collective failures, we will never trust them again. Probably the only way forward is increased regulation, or perhaps a more meaningful application of the existing regulations. A change to mandatory fee for service rather than commissions throughout the industry would remove the cause of much of the dishonesty at an operating level. Trust is impossible without transparency.
- Communicate relentlessly. Having something of value to say, and saying it consistently, in many different ways is essential. This does not mean more fluffy advertising, and competitive product pitches attacking us from every angle. It means that we, the customers, have to be able to understand the value that is added by our financial institutions, and the cost of that value.
- Measure the right things. Every business has financial objectives to meet, but confusing those financial objectives with the behaviour that delivers them is a bad mistake. In the end, the financial results are the outcome of a whole range of activity and behaviour, which when right will deliver the results. The old adage that you get what you measure almost always applies, and the financial institutions have been measuring the wrong things.
- Manage behaviour and build a new culture of service. Ensuring that behaviour is consistent with a revised set of values that will apply is essential. These should evolve from the Royal Commission report and the need for every business to be able to define its purpose. The boards have a big task in front of them to change the cultural norms that drive behaviour.
- Be prepared to be wrong. When a mistake is made, and we all make them, admit it openly, while adding what you have learnt from the experience, and what you will do in the future as a result. The sight of various board members setting out to absolve themselves of responsibility is a very bad ‘look’ and should not be tolerated by us as consumers, or the regulators.
- Take responsibility. Responsibility and accountability seem to be sadly lacking at present, and this needs to be reversed. Hopefully, it will evolve as part of the cultural renewal I optimistically forecast.
- Be human. The pace of change has outrun our collective ability to absorb it. Automation in the name of efficiency is fine, until the automation removes people from the equation. People deal with people they know like and trust, so there is a real challenge for the banks. Be known, liked and trusted again.
One of the structural problems the industry has to face is a very human one. We all want something for nothing, and nothing usually means we would rather pay more, but not see the payment to avoid feeling the pain. The result of this is the generation of hidden commissions, and sliding scale charges, rather than fee for service. Commissions wherever I see them change behaviour, create a short term financial incentive, that is their purpose, and usually become a part of the status quo. In most cases, and certainly in the financial services industry, this practice is not in the best interests of those who ultimately fund the commissions. The whole financial services business model is based on commissions, which is like building a skyscraper on quicksand, bound to unravel at some point.
Oops, I think it is unravelling!!
To the second question, the options we have as consumers: currently none. There are many alternatives, many touted differentiators, but in essence they are pretty much the same, it is just the details of the business models that vary a bit. However, malfeasance such as we are seeing has a way of adding fuel to the innovation fire, and I suspect there will be options opening up very quickly that deliver some if not all of the characteristics that will build trust from outside the traditional financial services industry. This will certainly give the regulators a headache, and boards something beyond their current horizons to think about.
I wonder if many of the legacy businesses will still be around in their current form in a decade? I doubt it very much. However, the point should also be made that it is the people who run and govern these businesses that are to blame, not the institutions themselves. The financial institutions play a vital role in our economic and social lives, and are indispensable, unlike those running them, many of whom should be dispensed with forthwith, without any form of golden handshake. Indeed, many should be thankful they will not be measured for striped suit and a modestly furnished suite at Silverwater.
Cartoon credit once again to the great Hugh McLeod at Gapingvoid.com
