Financial Counselling Australia

Financial Counselling Australia's Fiona Guthrie on how to fix financial services - by Fiona Guthrie - Mar 17 2016

Culture, it seems, is the new black.

We're all talking about it. Next week's ASIC annual forum is themed culture shock, David Gonski is worried ASIC is becoming the culture police and lawyers and company directors are rushing into print to tell us that it can't be regulated.

This in itself highlights two serious problems with the culture of the Australian financial services marketplace. First, everyone agrees that culture is incredibly important, but no one wants to be accountable for it.

That isn't how the public feel: when financial planners put their own interests before that of their clients, when payday lenders widely and routinely engage in irresponsible lending or life insurers sell policies expecting to deny legitimate claims we sheet the blame fairly and squarely on to the institutions that let these things happen.

It isn't enough to say that the board and senior management can set the tone, but then do nothing further. Poor culture is at the heart of so many problems in financial services. Someone has to be responsible for culture, or else nothing will change. If it is not the board and senior managers, then who?

And this leads to the second problem with culture in financial services. Even when a leader does accept accountability, as Ian Narev did last week with the problems within the CommInsure business, there is a glaring disconnect between what leaders are saying and what staff are actually doing. CBA said it wanted to be the ethical bank, but that hasn't translated into staff behaviour.

Culture can be managed

How then do we fix the problem? It starts with a recognition that the issue cannot be put in the too hard basket. And that culture, like any aspect of a business, can be managed.

Part of the solution lies in making culture visible; in particular, how staff really think about customers. Most organisations talk about being customer-focused, but for many that really means "How much can I sell?", rather than "Is this right product and the right thing to do for this person?"

In my world, we see marked differences between the way the Big Four banks treat customers in financial hardship. Some banks work with customers in strife, trusting the information they are given and treating people with respect. Another seems to have the starting point that all customers are out to rip them off. They put people through enormous stress, for very little gain. It is a scandal just waiting for the front pages.

Tangible drivers

Part of the solution is also to focus internally on the many tangible drivers of corporate culture. These include the effectiveness of whistle-blower policies, specific scrutiny of high return products, looking closely at product design and sales processes and assessing the potential for conflicts of interest. And always follow the money: what are the remuneration and incentives driving behaviour?

Part of the solution is also external engagement. Big organisations too easily become insular, losing touch with community values. Bring in consumer and community groups to challenge and provide different perspectives.

ASIC isn't trying to regulate culture. Organisations choose that themselves. But it is perfectly reasonable for them to expect an organisation to be accountable for that choice. We need a culture in financial services that says having an ethical culture matters. And we will accept responsibility for it.

Fiona Guthrie is chief executive of Financial Counselling Australia. She has been an independent advisor to the Commonwealth Bank about its financial planning remediation program.