'It feels tacky but everyone else is doing it...'

New Zealand consumers still don’t believe that financial services firms operate with their best interests at heart, Financial Markets Authority chief executive Rob Everett says.

Friday, September 7th 2018, 6:00AM 6 Comments

by Susan Edmunds

He spoke at the FSC conference this week, and told attendees that it was vital the sector focused on building customer trust - but it had some challenges.

“You don’t need me up here banging on to know this is true,” he said.

“But the public don’t believe you know it. Or if you do, that you are really going to change it. I see how hard many of you and your firms are trying to shift the way you operate to earn my trust and that of your customers.

“But I really don’t think they [the public] see it.  The issues highlighted by the Australian Royal Commission have probably set this back a good bit, even on this side of the Tasman, but in any event change was moving slower than it needed to.”

He said the banks had become financial services "supermarkets" and it was possible they had spread themselves too thin across product lines.

“Synergies and cross-selling never happened naturally and forcing them has led to bad outcomes. Shareholder expectations emphasising short-term earnings over long-term value drove boards and management beyond the bounds of what was decent and right.

"The focus on serving shareholders above all else, in much of the current Western corporate law model, might be argued to be at the heart of the issue. You can debate whether the current model is too heavily focused on returns for shareholders or returns for management. It certainly doesn’t look like it’s too heavily focused on returns for customers.”

Everett said there was no point having financial services leadership “pontificating at the top” about treating customers well unless they built the systems, controls and culture to do it.

“Even the best management team has little chance of being everywhere at once and in every decision.”

Firms needed to look at things such as what the criteria was for paying people, the design principles for new products, how complaints were handled, and how training and processes were built so customers understood the limitations of products sold to them.

“Some of the firms that strike us as having a genuinely client-focused culture in some parts, don’t in others. Even those that do aren’t always creating and embedding the repeatable processes and requirements internally to ensure it happens every time. You can’t “will” good conduct on a financial services firm above a certain size. You have to wire it in."

Everett said "real crooks" did not go into regulated financial services.

“There are too many rules and there’s too much risk of getting caught. They set up on the edges and they try to operate out of the sight of the referees. But 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’.

"Changing profitable practices and behaviours that seemed fine only a few years ago because the expectations of customers and regulators have changed seems hard. Well, have some faith in the long-term power of trust and the differentiator that trust and fairness will be. You know it makes sense."




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Comments from our readers

On 7 September 2018 at 8:19 am Brent Sheather said:
Good comments from Mr Everett but it would have been nice for him to warn all stakeholders about the downside of vertical integration as well. One comment however does look a little bit strange: “Everett said real crooks do not go into regulated financial services”. The Royal Commission in Australia exposed banks “lying to regulators, charging dead people and charging for no service”. That sounds like “real crooks” to me.

Mr Everett also apparently said words to the effect that “in these complicated institutions (banks) the customer has no voice and asked how it might be fixed”. Perhaps a good place to start would be to get rid of all the fund managers and bankers off the FMA’s own board and put individuals representative of the people the FMA acts for rather than those it ostensibly regulates.

The cynic will no doubt look at all this hand wringing and decide that the only change will be more extensive disclosure statements on the basis that the law is “if you disclose, anything goes”.
On 7 September 2018 at 8:37 am mockingbird said:
“ … so customers understood the limitations of products sold to them.”

A telling statement … the pink elephant again.

To make a dent in building consumer confidence requires acknowledging in the regulations the difference between sales and advice – and regulate and disclose accordingly. But, I cannot see this ever happening until those (and only those) that are qualified and actually provide ‘advice’ be called ‘financial advisers’ – and not promote financial services salespeople (who are limited/constrained to a range of in-house or aligned products) as ‘financial advisers’. They are not.

There’s nothing wrong with being a salesperson – but a salesperson is not an adviser, and until this is addressed, consumers will remain unable to make good and comparative decisions (that just might lead to increased buy-in/involvement in sound financial decisionmaking -- and confidence).

If VIOs and aligned product/advice providers remain able to promote themselves as giving ‘advice’ when selling only their in-house products, the consumer hasn’t a chance to make ‘an informed decision.’ Put the word ‘adviser’ anywhere in the occupational phrase of what somebody does, and surely it isn’t a stretch to assume that a consumer will think they are getting advice (when they may not be)?
Unfortunately, the scale of VIOs in NZ is staggering in the ‘advice’ space, and their representation in regulating the advice sector is overwhelming. It is a challenge not to be cynical watching all of this play out from the sidelines. It is disheartening to the many top notch qualified independent advisers truly working in their client’s best interests to achieve long term financial objectives.
On 7 September 2018 at 10:14 am smitty said:
I almost interpret the release as an acknowledgement (finally) that Bank's in NZ have had similar cultures to that of Australia. Sure, unique circumstances will present themselves on both sides of the ditch, but surely Joe public must realise that with all banks suddenly demonstrating that they are all about clients now, scrubbing targets, and making it all about the conversation with the client, that this is the acknowledgement they were trying to milk it for as long as possible. Perhaps now the FMA should apply a magnifying glass to those banks that have had significant pay outs to their adviser workforce for a job well done for the past 12 months (one does stand out from the rest on this). Job well done meaning they have exceeded their volume dollar target. Still it’s a move in the right direction. It does leave me to ponder how the SME businesses out there that have been built on sales, sales, sales, will evolve.
On 7 September 2018 at 3:09 pm Bruce Cortesi said:
In response to some of the comments above. ALL Advisers are SALESPEOPLE! I am still baffled after twenty two years that their are a group of people who say they are NOT sale people.

Every business is a sale person.

Lawyers sell service on fees, Consumers chose who they will deal with based on the price and level of service being sold or represented to them. Look up the definition of Selling. Businesses choose and change the Accountants they deal with based on the service and fees being sold to them.

The only difference in our industry is "do you want advice with that?". I Financial
Adviser sells their service - sells themselves as this IS a relationship based industry - you have to sell yourself as being the best and most trusted person that I choose to deal with.

Advisers who provide advice are different to those who do not, but at the end of the day, the client will implement a plan or products to achieve an outcome based on that advice which is determined by most dictionaries as a sale - a transaction engaging two parties.

Be proud that you provide advice on what you do, but also equally if a client does not purchase your advice, in other words your sales pitch, and does not pay for it, you will quickly become destitute. If you only give advice and do not use a product or vehicle to back up and assist with your client objectives, fine, but you are still selling advice, period!
On 8 September 2018 at 2:40 pm xlink_nz said:
I simply look at a couple of symptoms

1. Banks still have customers on default Kiwisaver funds

2. Mortgage loans are prioritized over over promoting investment funds
On 10 September 2018 at 9:27 am dcwhyte said:
As an attendee, I was also impressed with Rob Everett's general message and I endorse the views expressed on ethical conduct, etc. However, like Brent, I reject the notion that real criminals are deterred by regulation.

In the UK, the 1986 Financial Services Act was barely 2 years old when the Barlow Clowes scandal broke. They were "real criminals" and the cost of gaining access to the compliance process was their investment to gain access to investors funds illegally. David Ross was convicted of criminal activity - ironically, both Ross and Clowes got 10 years. I care not whether criminals are classed as 'real' or not - not sure what other classifications of criminals actually matter - but be assured a regulated industry with follow-the-steps compliance processes will be a target for criminals. And sure the risks are high - but so are the rewards.

Google Michael Milken and see how criminals can thrive by breaching financial services regulation. It would be comforting to believe that access to the industry is made more challenging but if a miscreant is intent upon defrauding consumers, no amount of regulation or legislation will deter the pursuit of illegal activity. After all, everyone knows that it's illegal to break into houses but there are still people being convicted of house-breaking.

This doesn't detract from the thrust of Rob Everett's message which I believe will be uploaded on the FSC's YouTube site later this week along with the other Conference presentations - well worth watching!

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