The Royal Commission into financial services – the inquiry that was resisted but is now acknowledged as ‘long overdue’ – has been exposing issue after issue in the most important sector of our economy.
By my simple reckoning, its cost won’t be the estimated $80 million often quoted but more likely will top $500 million after submission preparation, legal advice, management time and organisational drain are factored in for all the various companies, organisations and individuals that have been swept up into its net.
Other than shining a light on major issues ranging from poor practice to corruption, conflict of interest and arguably illegality, what will it achieve in terms of positive reform?
The short answer is very little. Undoubtedly – because media and government are involved – there will be regulation and increased governance. But as anyone who has worked in financial services will tell you, it is already the most overburdened business sector with government regulation, oversight and governance.
Some would argue that more than forty per cent of the organisational capacity of running a financial services business are consumed with paperwork, risk assessment, governance and legal sign-offs.
And yet it clearly does not work as is evidenced by revelation after revelation at the Royal Commission hearings.
There is one simple truth at the heart of these issues that is papered over by the political system. Legislation doesn’t solve problems like these. It just displays evidence of industry and outrage.
The fundamental problem in the financial services industry is a cultural one that cannot be changed by rules, regulation and paperwork. Arguably this regime is the very thing that magnified the problem in the first place as it divides businesses into those that seek to wield draconian power applying non-productive compliance face off against the members of the business who are driven to produce results for personal and professional gain.
Financial services businesses today have not only lost a retail culture, they ridicule it. From the most senior leadership down, the very people we turn to in the vain hope of stewardship and care to grow our financial health have become maniacally focussed on sales rather than being the guardians of our money.
The model was supposed to be one of them making money by making us money, not selling us stuff and having no linkage to customer outcomes.
The only way to change this mess is for wholesale cultural change. Change that means all stakeholders are valued, not just shareholders; customer outcomes become the primary source of income generation; board composition moves away from being accounting and legal skill biased in favour of customer and industry experience; and employees being hired for customer empathy above all else.
Financial services are the lifeblood of the economy. It must be admired and trusted by all of us for it to fulfil its potential. The quantum of a banks profit is not relevant. But it should generate its profit out of serving its customers interests first and generating its profits from how those customers profit. Just as any retail business should.