Limited functionality available
Commissioner Hayne’s final recommendations are out. As we pour over the detail and ask what’s next, it’s worth being wary of some important traps to avoid now that – for many at least – the Royal Commission is all over bar the shouting.
The reality is that the real work is now about to start.
Don’t assume all the conduct problems are out in the open. To dig into the issues for the Royal Commission, Hayne largely relied on the selected institutions themselves to self-report. While this was supplemented by more than 10,000 individual submissions, there seemed little that was new or unknown.
When some institutions reported little or nothing, this appeared – on the face of it – to lead to the conclusion that few problems existed. All or most of the case studies related to existing issues that the institutions were already dealing with the regulator on.
In reality however, numerous issues, institutions or sectors within financial services were not examined with particular rigour. It is worth noting that many organisations are simply not as mature in terms of their awareness and response to conduct issues as they may have assumed, and as a result did not seem to be aware of existing problems themselves.
“I’m in the clear”
Pretty much everyone who avoided a pummelling by Rowena Orr, Counsel Assisting is still exhaling with relief. But there’s a good chance the reason they escaped the flames wasn’t because they were ‘better’ or ‘smarter’ or more ‘customer-centric’ than those organisations that had a near death experience. It’s more likely that they were the beneficiary of a good dose of luck. “They didn’t pick our case study! We’re too small!”
A year was never going to be long enough to really uncover all the issues.
By definition, the inquiry was a mile wide, but could only ever be an inch deep.
There are a number of sectors in the industry that Hayne skimmed right past, but that have been the subject of conduct actions by regulators. Or that remain entrenched in commission-based remuneration while attempting to service the best interests of consumers and small business.
Many of the findings associated with conflicts of interest are likely to apply to other parts of the industry, and need to be considered well outside the bounds of mortgage brokers and financial advice.
It is well worth remembering, that apart from very few clearly ‘bad eggs’, most of the problems that have emerged are due to the way organisations have always done business. It’s just that, right now, that’s no longer good enough in the blaze of community expectations.
“The pendulum will swing back”
While 2018 was pretty extreme, executives need to recognise that this wasn’t a glitch or a bump in the road on the return journey to the old normal. The world really has changed.
While it seemed like an over-reaction, there was actually a lot under all those disturbing case studies. Power dynamics between institutions and their stakeholders have fundamentally shifted, and reputations and trust are more fragile and more meaningful than ever. It won’t do to bunker down in the ‘old ways’.
Great leaders need the courage to double down on ensuring real good customer outcomes, and get a complete understanding where existing business models may fall short in delivering them.
“Our people have good intent” / “We are customer-centric”
Unfortunately, good intent isn’t good enough. We are judged by our outcomes, not by what we intend.
Of course many problems did arise from misconduct. There were absolutely deliberate decisions to steal from customers, or to openly disregard poor outcomes they received. However, good intent needs to be accompanied by strong frameworks to manage conduct; honest conversations about what can be done better; and courageous leadership to call out issues and to empower the organisation to truly understand the impact of their organisation on stakeholders particularly customers and their communities.
“This conduct stuff is just about compliance with the law”
To truly address conduct, requires self-reflection and actually understanding what it is about. Conduct is not just about complying with Anti-Money Laundering, financial crime or other laws, and it’s not just about the right behaviours.
Conduct is about ensuring you consistently deliver fair and suitable outcomes for stakeholders including customers, staff, suppliers, and markets. It means you need to be able to put yourself into the shoes of the customer and identify what they are experiencing, and whether it genuinely matches how you imagine you are treating the customers.
It requires us to look at the way we’ve always done things with fresh eyes, and invite challenge and alternative points of view. To understand and embrace what your complaints are telling you, and to make it easy for customers to pursue those complaints in the first place.
“Our people are coping”
The best way to truly support your staff is to focus on creating purpose and motivation, and on how your people are feeling. This is the time to create aspirations around great customer outcomes, about treating customers with respect, and differentiating through delivering fair and suitable outcomes to customers.
For more commentary from Deloitte on the Royal Commission click here.
Rosalyn is a partner in Deloitte's Melbourne office in the Governance, Regulation and Conduct practice. She specialises in supporting firms to design and assess frameworks to treat customers fairly, including the development of conduct, product governance, sales practices and complaints handling frameworks.