Financial services moving forward: it’s all about people
Insights from the 2018 ASIC Annual Forum
While past misconduct within Australia’s financial services industry continues to dominate headlines, discussions at the recent Australian Securities and Investments Commission (ASIC) Annual Forum looked ahead. In particular, the focus was on maintaining trust. Below we bring together some of the thoughts on future pathways for the industry that surfaced during the two-day event.
Regulators, politicians, industry players (old and new), consumers and customer advocates, as well as academics and other influential thinkers from around the world convened in Sydney on 19 and 20 March for an ASIC curated forum. The theme this year was “maintaining trust” and specific issues canvassed ranged from whistleblowing and corporate social responsibility, to ageing populations and millennials, from property investment and illegal phoenix activity, to competition and technology. It was a full house for most of the forum, often with only standing room available.
So what were some key messages to emerge from the forum?
People will always need financial services, but…
The good news (for those in the industry at least) is broad agreement that financial services will continue to be of fundamental importance for society and a part of daily life. Nonetheless, early on delegates were advised that financial services is the second most distrusted industry in an age when trust is moving away from institutions to individuals. Most expressed the view that the industry needs to re-imagine itself if it is going to be trusted and thriving going forward.
Professional, ethical and accountable behaviour required to maintain trust
New ASIC Chairman, James Shipton, identified professionalism - competence, care and ethics - as the cornerstone of rebuilding trust. This sentiment was echoed by others at the forum, while the importance of having clear values and a social purpose, both at industry and firm level, was also noted by several speakers. There was general agreement that that ethics and culture cannot be externally imposed (e.g. by regulators) and that industry must drive change. Being responsible and accountable, from board through to the front line, and right across the entire supply chain (e.g. distributors as well as manufactures), was another opinion shared by several on the stage.
More regulation on the way, but this is not the best tool for building trust
The various inquiries, new regulations and planned reforms were touched on at regular intervals. BEAR and its potential roll out beyond banking, a consultation on applying unfair contract terms to general and life insurance, the remit of the Australian Financial Complaints Authority including small businesses, new financial adviser professional standards guidance and the Financial Adviser Standards and Ethics Authority, new whistle-blower legislation, proposed design and distribution obligations, recommendations on a new open banking. The list could go on. One speaker described the industry as “drowning in rules”. Despite this, evidence was also presented that self-regulation has more trust than government driven regulation, and that self-generating ethical culture is more successful at engendering desirable behaviour than externally imposed rules.
Data can be transformative, but more data doesn’t always mean better outcomes
Many spoke of the benefits (and necessity) of harnessing the tidal wave of data bought about by digitisation and interconnectivity: it can help industry better understand and meet the needs of individual customers, can fine tune insurance pricing and signal to customers how they need to better manage risks, and when harnessed correctly prevent problems. Some predicted that the data economy could be as big as financial services within the next five years. But, as many warned, more voluminous and more granular digital data brings heightened risk of cybersecurity, privacy and data breaches. The need for Boards to ask astute questions to challenge management when it came to data or technology driven proposals was also highlighted by more than one speaker.
Others pointed to the potential for unintended adverse outcomes, such as the avoidance of health checks for fear an insurer would be able to access information and deny cover, or implicit and explicit bias in decision making technology / systems based on data. Having more data might also lead to “choice overload”, confusion and information fatigue. It was further noted that in open data systems, customers could quickly lose track of where data had gone and what consents had been given.
Need to understand and cater to customer needs, and they are a diverse bunch
Customers are becoming increasingly demanding: they want personalised, flexible and frictionless financial services, delivered on digital platforms, anytime and anywhere. Millennials in particular were identified as demanding greater personalisation and digitisation, with a focus on the experience. How the industry interacts with those at the other end of the spectrum, retirees and superannuants, was also signalled as a focus area for ASIC going forward. Catering to the particular financial needs of women, and also older Australians, were the subject of breakout sessions. Others noted intensifying expectations around a firm’s corporate social responsibility record and ways to best engage indigenous Australians. There was discussion around the need to not only innovate, personalise, and modernise products and services but also disclosure. Information and disclosure needs to work in a digital environment and be both simple and useful to meaningfully engage customers: if customers don’t engage, they won’t understand, and they will not make good decisions.
FinTech start-ups aren’t the competition, it’s the “GAFAs” of the world
Compared with previous years, several of the discussions around competition seemed to be less focussed on the FinTech/incumbent dichotomy and more about the tech and ecommerce giants like Google, Apple, Facebook, Amazon and Alibaba (“GAFA”s “TechFins” “BigTech”). Some suggested an uneven playing field in regards proposed open banking/open data regimes. Others noted the “war for talent” in which much needed data scientists and engineers choose Google over a Big 4 bank. Customer expectations and demands (noted above) were also identified as being set by the tech and ecommerce giants: people are now expecting their financial services experience to be like their experience with Uber or Alibaba.
The regulator is changing too
The new ASIC Chairman, James Shipton, started in February and this will likely bring a change in ASIC’s character and culture. Mr Shipton said he wants to evolve ASIC into a regulator that is more swift, agile and flexible. The government also announced a new Deputy Chair position would be created and that ASIC will have a new competition mandate.
In the end it’s all about people
One of the key messages than ran through the new Chairman’s discourse, and that we will continue to hear, is that finance is not an end in itself but exists to serve people: “It always comes back to people”. This theme was present in other discussions: that the ultimate objective of strengthening competition and for open data regimes is to get better outcomes for people; that millennials trust individuals not institutions; that establishing the trustworthiness of people will rebuild trust in the industry; that focusing on the demand side and “the power of personalisation” are key to maintaining relevance in today’s online interconnected and digital world.
So what can we conclude as the broad vision of the future? The industry will be more professional, ethical, trustworthy, socially responsible and accountable; reflective of, and responsive to, diversity; guided by the needs of “real people” when making decisions; transparent, open and interconnected; savvy about, and enabled by, data and technology.
All individuals in the industry, and their advisers, all have a role in making sure this vision is realised.
Published: March 2018