Corporate

Greedy, tacky, slow: FMA boss hits out at industry

New Zealand’s finance sector is mired in a culture dominated by how much money companies and senior managers can make, and customers are losing out - sometimes big time.

That was one of several messages from a pulls-no-punches speech by Financial Markets Authority boss Rob Everett at an industry conference today.

Everett says there’s been a dramatic - and in many cases justified - fall in consumers’ trust in the financial services companies meant to be serving them. And our banks and other institutions are being far too slow to change how they operate to win back that trust, he says.

“What seems to happen in financial services is an insidious slide into ‘it feels a bit tacky, but everyone else is doing it and we can’t afford to be left behind’,” Everett told attendees at the Financial Services Council and Workplace Savings NZ 2018 national conference.

“...an insidious slide into ‘it feels a bit tacky, but everyone else is doing it and we can’t afford to be left behind’."

“If you look at some of the financial services ‘supermarkets’ that banking groups have become, you can make the argument that... shareholder expectations emphasising short-term earnings over long-term value drove boards and management beyond the bounds of what was decent and right.”

He says that’s resulted in poor outcomes for many customers.

“One challenge here is how to re-engineer these complicated institutions so the voice of the customer is heard - and where the customer has no voice, because they don’t actually know themselves what good looks like, someone else is looking out for them.”

“There’s no point pontificating at the top about treating customers well, unless you build the systems, the controls and the culture."

If Everett’s frank summary of problems in the industry may have shocked some in the practitioner audience, his proposed solutions could have them reaching for the defibrillator.

Boards, he says, need to:

- change their view of how much money senior management should make;

- and how much shareholders can expect;

- and focus unrelentingly on serving their customers; remembering that

- “in this context, the customer is of course the end-user of the product, not the intermediary who is selling it for you.”

Meanwhile, senior management must look at:

- the criteria for paying or promoting people;

- how complaints are handled - “what do you do where even though the facts were short of a breach of the law, nonetheless there is a disappointed and confused customer?”;

- build processes or train staff so customers understand the limitations of the product sold to them or the risks inherent in the investment being recommended;

- set up structures to make sure customers understand if an employee is only advising on, or offering products from, their own company; and

- train sales staff to listen for the questions that aren’t asked and to identify customers who might need more help to make a good decision.

Everett says fair treatment for customers has to be embedded right through an organisation.

“There’s no point pontificating at the top about treating customers well, unless you build the systems, the controls and the culture that does it for you. As the moral academics will tell you, it’s the instinctive decisions your staff make when no one is watching that define your firm’s ‘moral sense’.”

“We are frustrated ... with the slow pace of change. That frustration will manifest itself over time as we become less understanding and less tolerant of firms that talk a good game but don’t put the hard yards in.."

The practice of financial firms paying big commissions to salespeople to encourage them to sell more product - at whatever cost to the consumer - came under particular fire in Everett’s speech. The Financial Markets Authorities’ own research finds life insurance companies, for example, offer up to 200 percent commissions on sales. They also give out lavish gifts or all-expenses paid trips if agents sell a certain number or dollar value of product.

Everett says some firms are “finally moving away from paying their staff for sales”. But many are reluctant to change.

“It will hurt sales for sure, and it will hurt shareholder returns too - in the short term.”

However, he warned the Financial Markets Authority is losing patience.

“We are frustrated in places with the slow pace of change. That frustration will manifest itself over time as we become less understanding and less tolerant of firms that talk a good game but don’t put the hard yards in to make sure it happens.”