The interim report from the Banking Royal Commission (BRC) into misconduct in the banking, superannuation and financial services industry has some hard lessons for those in the financial services industry, including accountants and financial advisors.
Leadership failures, deeply-ingrained cultural issues, governance and accountability breakdowns, lack of risk management, and complacency around ethics characterise many of the banking royal commission’s findings. A clear consequence is that consumers have had their faith in the industry badly shaken.
It’s therefore important for accountants and financial planners to be aware of the key lessons learned and proactively work to restore that trust from their own corner of the industry.
Most of the changes will affect boards and committees, however, accountants will have roles to play in improving risk identification, remediation, reporting, and compliance. Management must appropriately govern risk and focus on the quality, independence, and reliability of internal processes to manage risk.
Accountants will be expected to provide comprehensive reporting that clearly highlights matters warranting specific attention. They will be required to speak up about troubling practices that either walk a fine line between ethical and unethical practices, or that clearly cross the boundary.
The BRC has, potentially, created a new environment in which it will no longer be acceptable to engage in deceptive or unethical practices, or to tolerate those that do. Consumers and businesses are more likely to diligently and thoroughly investigate the behaviour of accountants and financial advisors before agreeing to work with them now that a light has been shined on such practices.
The focus will be firmly planted on measuring and rewarding the right behaviour and acting in the clients’ interest – on the quality of advice and feedback from clients (including but not limited to, net promoter scores - a measure of customer satisfaction), rather than the amount being billed.
Financial services providers will need to work through the four key stages of governance maturity to reach the high level of maturity that’s required of the industry in the wake of the BRC.
These stages are: compliance; efficiency; integrated strategy; and purpose and passion.
Reacting to compliance requirements means financial professionals may not technically fall foul of any regulations but they take a minimalist and ad hoc approach to compliance. They’ll look to minimise risk and improve reporting and audit capabilities.
A marked increase in emphasis on reporting and risk avoidance characterises this next stage of governance maturity. Professionals are likely to be more proactive and improve efficiency and engagement. Systems that help professionals measure and improve results, facilitate closer supplier engagement, and manage the environment more effectively will be important at this stage.
Once the integrated strategy stage is reached, professionals will be looking to transform the enterprise and fully integrate compliance strategies into corporate strategy. This stage is characterised by proactive and systematic procedures, high-level interpersonal and communication skills, and certification. Flexibility is key.
Purpose and passion
Genuine industry and thought leaders can create a transformative culture that permeates the entire organisation. It’s driven by a passionate, values-based commitment to the wellbeing of the enterprise, society, and environment. It’s cultural and ingrained; any wrongdoing is immediately obvious, and a zero-tolerance approach is expected.
Once finance professionals reach this level of commitment to ethical dealing, they can build stronger business relationships and deliver high levels of transparency and accountability.
As leaders, these professionals will be known for sharing knowledge with stakeholders and supporting sustainable project and process development. No longer simply reacting to compliance requirements and emergencies, these professionals are ready to innovate and take their services to the next level.
Taking such a leadership position will require accountants to develop an appetite for consequence management and strong performance management across the entire organisation, including boards and committees.
It is likely that the financial services industry will see a mass exodus of financial planners and advisors over the next few years as the fallout from the banking royal commission becomes clear. No longer will it be possible to conduct business in an opaque way, receiving bonuses and kickbacks for recommending products and services.
Instead, the requirements of these financial professionals will be higher than ever, including certifications and ethical commitments. Industry codes of conduct and self-regulating systems will make it difficult for marginally-qualified financial professionals to remain in the industry.
This is a good outcome for financial professionals who are committed to behaving ethically and honestly, and to delivering excellent outcomes to their clients. It could potentially create increased demand for services in a market where fewer professionals can provide those services.
There may be increased educational or certification requirements before finance professionals can enter the industry. While this may seem onerous in the short term, it’s likely to be a positive factor in the long term as the quality and capability of financial professionals continues to improve.
As financial professionals become capable of providing a higher quality of services, clients will become more reliant on their advice. This creates an opportunity for accountants and financial advisors to take a more strategic and leading role in helping their corporate and small business clients grow their operations successfully.
This, in turn, sets the scene for a higher level of job satisfaction and engagement for accountants and financial planners who can get out from behind the numbers and be more creative and innovative on behalf of their clients.
Regardless of the eventual outcome, it’s clear that the bRC has significantly shaken up the industry and its effects are likely to be felt for years or even decades to come.
This article was written by Jenny Johanson for AccountantsDaily
Read more about the Banking Royal Commission >>