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Comm Bank scandal – it's all about culture

Over the last few months, important non-banking arms of the venerable CBA have come in for lots of media criticism.

First it was the financial planning arm and now it is the life insurance arm, Comminsure. They stand accused of using outdated definitions of what constitutes a heart attack, to knock back claims, that could have succeeded under more modern, liberal, definitions used by many others in the industry. Insurance is a minefield of definitions and complexities. There is not much doubt whether somebody has died, but has a person had a heart attack? – it all comes down to the definition.

In the bank’s financial planning arm, in-house advisers gave clients poor advice, that cost them dearly. 


But how did all of this happen (and keep happening)?

The blame is often put at the feet of “culture”, and this is undoubtedly true.

But, what exactly is culture, and why is it so important?

“Culture” means many different things to different people at different times and in different places. It is one of those words in the english language that has differing meanings, depending on the context.

In this context, the best definition is the one that I learned at university, while doing my MBA. It is that culture:

It is the set of norms and values within an organisation

Whereby those values establish how members of the organisation behave towards each other, their customers, clients and suppliers.

Thus they become norms of behaviour.

Anyway, that is the gist of it, and clearly the people working within CBA Financial Planning, and Comminsure, did not exhibit the sort of behaviour towards their clients that people expect.

But, how come?

In my opinion, the answer to this lies, in the vast differences between a banking function, and a financial planning and insurance function.

CBA has been in the banking universe for many, many decades, and has built a formidable reputation in that space. However, the landscape of financial planning is very different. Very different.

The world of banking is very “black and white”. We deposit our money with them, and they give it back to us as agreed. We take out a loan, and the terms are black and white. The loan is for X dollars, the interest rate is Y per cent, and repayments are such and such. The interest rate may change at the banks’ discretion, and this is something we bitch about – but in the end accept. The terms are spelt out in documents full of legal jargon, and if you are unsure – then call your lawyers.

By contrast, financial planning and insurance are full of grey areas with hardly any black and white. In the case of insurance, definitions are crucial, and come in various shades of grey. The importance of having definitions that are (a) in line with community expectations, and (b) properly explained, is crucial.

However, we the public, aren’t aware of how important these distinctions are, or even that they exist. We go along, simply because the Bank has always paid us what is due, when it is due etc. The Bank has a good “brand”. The bankers don’t know (that insurance is very different), and furthermore, they don’t know that they don’t know. Then we, the public, don’t know about the difference, and furthermore, we don’t know that we don’t know. 

Sound like a recipe for disaster?? It sure is. 

We are implicitly relying on the Bank to properly explain the deal to us, and not to sell us into an inferior product. It is made even worse when the inferior product is priced cheaper than its competitors, thus adding a further hook for the unwary and unsophisticated.

In financial planning, the response of the banks has often been to straitjacket their financial planners into using dumbed down, pre-packaged solutions that often take no account of the wishes of the client – whether the wishes make good sense or not. A sort of “We know best what is best for you, and this is it,” approach.

The only way that future events of this kind can be avoided, will be if the cultures of these organisations change. The world has changed, and going on and acting as if the world is still black and white, will only lead to more problems. It is necessary to get a culture that puts the long term interests of the client ahead of the short term interests of the institution and people within the organisation are empowered and encouraged to act accordingly.

However, such change takes time. Don’t expect anything soon.

In the meantime, be very careful approaching banks for non-bank products or services. You most likely will get a much better result dealing with a Financial Planner who is in the business long term, understands that his or her future success depends on looking after clients’ interests and is not directly linked to a bank.

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