Banking royal commission opening shows gap between intent and action
This article first appeared in the opinion section of the Australian Financial Review on the 20th March 2018. Click here to view the original version.
Rowena Orr QC: Why can’t you disclose the upfront commission?
Daniel Huggins CBA: We could. We haven’t done that to date because we have seen this as the – you know, full amount as what should be put here.
Rowena Orr QC: You see it as the full amount, but the full amount isn’t given, nor is any part of the amount. Why can’t you disclose the rate at which the trailing commission will be applied?
Daniel Huggins CBA: We – we – we could disclose that. I would have to understand, from my team, what it takes to do that. But there’s – you know, but we could do that. We are not doing it here, but we could do it.
Rowena Orr QC: It shouldn’t take much, should it Mr Huggins, to tell the customer that there is an upfront commission of X dollars and there will be a trailing commission paid at a rate of X per cent on the balance that is outstanding at the end of every month, and there is also an amount that’s being paid because there has been a referral of another CBA product…?
Daniel Huggins CBA: No, that’s fair.
To say the first week of hearings at the banking royal commission have been revealing is an understatement. However for me, most revealing has not been the evidence per se, but the way the witnesses have acquitted themselves.
Whether by design or accident, having Karen Cox from the Financial Rights Legal Centre appear as the first witness was a masterstroke. She was very open, honest and forthcoming in her testimony. What’s more, it was clear there was a higher purpose to her work – assisting those who are experiencing financial hardship due to predatory behaviour by financiers.
Then came the bankers, and the contrast couldn’t have been starker. They were defensive, evasive and at times struggled providing a truthful answer. But more importantly, their responses revealed exactly where the banking and finance industry finds itself with respect to ethics and conduct.
The industry, and the institutions within it, have invested a lot of effort and resources into improving behaviour. These efforts, in the majority of cases, have been sincere. When senior leaders say that “doing the right thing” and “putting the customer first” are priorities, I believe them.
However, when the way the industry behaves is exposed to the cold light of day, there is clearly a gap between what institutions say and what institutions do. And when the witnesses are made aware of this gap, their cognitive dissonance is glaring. They want to believe that they are doing the right thing and prioritising the customer, but they are clearly not. This made for some uncomfortable moments.
There were multiple examples that demonstrated this. The length of time it took the NAB to advise ASIC of the issues associated with its so called “Introducer” program doesn’t demonstrate a commitment towards “doing the right thing”. The reason given for why brokers should receive a trailing commission (“a customer might want a variation to the loan”) doesn’t demonstrate a commitment to “putting the customer first”. Nor, as displayed above, does the inability to explain why customers, when being sold a loan by a broker, are not advised how much commission the broker will receive.
In short, what this demonstrates is that the industry has taken the first (and easiest) step towards addressing cultural issues – they have signalled a change in priorities in their words. But this has yet to translate into a change in priorities in their behaviour. And this is not entirely unexpected. Changing culture is difficult. The legacies of the sales and profit driven culture that has been a feature of the industry will linger.
Perhaps most revealing has been the Commissioner – smart, witty and clearly someone who doesn’t suffer fools. No doubt he isn’t ignorant to what I have described above. But one shouldn’t underestimate the challenge ahead of him. Identifying issues in large, complex systems is one thing. Finding ways to effectively rectify them is a different challenge all together.