Customers for life, not just for Christmas
Making the broader case for reframing business purpose through a conduct lens and looking after vulnerable customers.
The Financial Markets Authority/Reserve Bank’s much-anticipated report into conduct and culture at New Zealand banks is due out this afternoon, following sometimes shocking revelations in Australia. In the final part of a series, Catherine Waugh and Roopa Raj talk to Newsroom's Nikki Mandow about steps financial services companies can take to make sure they have the best interests of their customers at heart.
This article originally appeared in Newsroom
If New Zealand financial services companies were under any illusions about how seriously New Zealand’s regulators are taking issues of conduct and culture, the Financial Markets Authority annual report released a few days ago would have dispelled them.
FMA chief executive Rob Everett called the events of the last year, triggered in large part by the Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, “extraordinary and probably unprecedented”, and said the FMA would be making the most of the momentum generated across the Tasman to bring about change here.
“We are determined to play our part to ensure this opportunity for customer-centric conduct to be permanently embedded in the culture of the financial sector is not lost,” he told stakeholders.
Most organisations in the sector already think a lot about what their customers want and how to best service them. Being customer centric is an understood key to success. And there is a shift taking place, from a culture of seeing customers largely as a way of generating revenue to a culture where customer needs are at the forefront, says Deloitte risk advisory partner Catherine Waugh.
“There’s a lot of positive talk generally, including coming from financial service providers in New Zealand, around caring more about customers,” Waugh says. “But companies need to ensure behaviour lines up with this commentary. Really caring about your customers is about ensuring you take a long-term view of their financial health, not what’s good for the short term profitability of the organisation.
“It’s about having a customer for life, not just for Christmas.”
But how do you really achieve this shift?
It must involve the whole organisation from the top down, says Waugh, from boards setting priorities which balance the interests of customers alongside short-term commercial success, to HR departments employing staff for their integrity or a good record for customer satisfaction rather than simply their sales generation prowess, to designers making sure products are easy-to-understand, don’t have unnecessary fees, and are fit-for-purpose for individual customers.
Then you need sales staff to be remunerated in such a way that doesn’t encourage personal gain over customer needs, you want a culture where individuals and leaders are held responsible for misconduct, and a surveillance system which makes it likely misdemeanours will be brought into the light.
Herein lies the challenge. How do you make sure that a cohesive conversation is happening across the firm?
The devil is in the detail and it is often very hard to bring conduct to life, particularly as it is directed from senior levels of management to teams who have different roles. The discussion on achieving suitable customer outcomes will be different for front line staff than for product design or the marketing team.
What’s important is being clear about definitions, being brave and looking for clues as to where there may be conduct and customer issues hidden within the organisation. Hidden clues will often be in the form of complaints data, HR exit interviews and risk culture surveys.
Last year, Deloitte’s Center for Regulatory Strategy released a report titled “Managing conduct risk: Addressing drivers, restoring trust”, which aimed to provide pointers to financial services companies wanting to improve conduct and strengthen trust in their sector.
“The importance of embedding a good culture and cultivating good conduct is recognised as key in restoring reputational capital, retaining customers, building a sustainable business and maintaining a competitive advantage,” the report said.
It’s not just about avoiding the regulator and keeping customer loyalty, says Deloitte risk advisory director Roopa Raj - though those are very important.
What is often missed is the importance of creating a good environment for staff - particularly younger ones.
“Millennials aren’t necessarily going to the highest bidder in terms of salary, they are interested in ‘purpose beyond profit’, in companies that treat their employees and their customers ethically,” Raj says. “It’s about the sustainability of your own workforce - millennials with a strong sense of being connected to an ethical social purpose are less likely to leave.”
Deloitte’s most recent annual millennial survey, released in May, showed a significant reduction in millennials’ trust in the businesses they work for or buy from. Only 45 percent of the people surveyed believed businesses behave ethically and only 42 percent thought business leaders were committed to helping improve society.
“Millennials overwhelmingly feel that business success should be measured beyond financial performance,” the survey says. “They believe businesses’ priorities should be job creation, innovation, enhancing employees’ lives and careers and making a positive impact on society and the environment.
Raj admits there are a lot of different elements to getting conduct right. But financial services firms need to start by identifying their vulnerable customers, where changes will really make a difference. This isn’t an easy thing for companies to do, because there isn’t one source of information about where vulnerable customers are that you can pull out.
But it’s critical.
“Ultimately, reframing business purpose through a conduct lens, and looking after vulnerable customers, will only add to sustainable success in the financial services industry. And it doesn’t have to be mutually exclusive from long term profitability,” Raj says.
Why boards should be asking the awkward questions
Exploring the complex issues around conduct and governance
What we do in the shadows
How culture can drive good conduct to emphasise fairness and customer service