Thirty years ago, an economist making a keynote speech at a bankers’ conference told the audience that to succeed in a liberalised financial services market, they must forget they are bankers and become salespeople.
This economist’s mindset was by no means unique. Following the ‘big bang’ reforms that liberalised European banking in the 1990s, most banks grafted a sales culture on their traditionally conservative strategies. The short-sightedness of those promoting an aggressive sales culture in retail banking soon resulted in a catastrophe of scandals in many countries worldwide.
The financial services industry’s obsession with developing or instilling a sales culture was contagious. It made some management consultants quite happy as financial services providers invested heavily in transforming their strategies to promote sales of services that improved their profits but often failed to address their customers’ real needs.
Is it realistic to believe that employees will magically become both good salespeople and sales-driven after a few training sessions? Is it possible to turn 50-something-year-old managers into something they are not and do not want to do?
Jeff Morris is a whistleblower who highlighted the abuse of aggressive sales practices in the Commonwealth Bank of Australia a few years ago. He argues: “The history of Australian banks is good, honourable and an important contributor to national economic growth. It was in the 1990s when things began to change. American sales culture came in, and banks got infected with the remuneration US banks had always paid. I noticed the mentality of banks; they lost their way and sight of their history.”
The same phenomenon was experienced in the European financial services industry. The result was regulators’ insistence on tighter compliance regimes that discourage the hard selling of financial services. Aligning a sales culture with compliance will always be a complex management function.
Much has been said about what corporate culture is about. It is generally agreed that culture is difficult to define and measure. It is even more difficult to impose by legislation. Even if it was not so difficult, financial services operators could employ an army of legal experts to pick loopholes in legislation and use them to their advantage.
Regulation on conduct risk, governance and consumer protection may have gone into overdrive. Still, today’s situation has improved as those prepared to take risks to boost short-term profits face hefty sanctions by regulators.
Is it realistic to believe that employees will magically become both good salespeople and sales-driven after a few training sessions?
Some now argue that the pendulum has swung too far on the opposite side. Financial institutions are overwhelmed with regulatory requirements to ensure that customers are treated fairly. Employees are still expected to promote sales while dealing with copious box-ticking documentation to satisfy compliance requirements. This operational tension may be affecting morale.
Banks with a business model characterised by vertical integration of advice, retail banking services, wealth management, fund management and insurance face an even more challenging situation as this model amplifies conduct risk.
Some Australian banks, for instance, are considering selling part of their business and concentrating on core banking functions to manage conduct risk. Others are reverting to old sales practices that are once again irking regulators.
Regulation around new capital requirements for banks and other financial institutions creates more cost, which is being passed on to consumers. There are ethical implications around the extent to which the customers should bear compliance costs.
The sales strategies of some financial institutions may be out of step with trends in consumer behaviour. Branch visits are declining. In the last two decades, consumers have increasingly researched their financial product decisions, a behaviour that is both caused and enabled by technology.
Ron Shevlin is the director of research at Cornerstone Research. He argues that the answer to making banking fairer and compliant with standards the community expects is for banks to build better digital marketing capabilities, giving consumers as much objective information as possible. They can then let them decide what is best for them. This may be less arduous in the long term than retraining staff to adopt the sales culture.
Financial services providers must emulate the medical profession and become more customer-centric to be as trusted as doctors in the community.
Most people trust their doctors to guide them on physical health issues. Isn’t it logical to expect financial services providers to adopt the highest standards for the duty of care to protect the financial health of their clients?
Aligning culture with compliance will never be easy, but it is the best way for the financial services industry to achieve a better future.