14 May The Fallout from the Banking Royal Commission: How will it affect the SME Financial Services Industry
The fallout from the financial services royal commission prompts a warning!
Am I wrong if I say that just about everyone was a little shocked by the sheer extent of misconduct in consumer lending practices and financial advice sector? I’ve been working in the industry my whole career, and yes, I’ve seen some pretty interesting things occur in my time. But I wasn’t prepared for what has been uncovered in this short time, and it still has some time to run!
In May the commission turns its attention to the SME sector and we can expect to hear more horror stories then. But while we haven’t neared the end of this royal commission yet, perhaps it’s time to consider what the fallout might be for the SME financial services sector, and what you can do to survive it.
What about the brokers:
Like most bank staff, the vast majority of brokers are good people who want to do the right thing by their clients. However, being paid by the lender and not their client creates the potential for conflicts of interest.
So, I think we can get prepared for some major changes in this sector. I think it may change in the following areas:
- Banks will look to reduce upfront and ongoing commissions paid.
- This will in turn change the relationships between banks and brokers as it will impact profitability.
- We might see a lot of brokers leave the industry while others will modify their business model (perhaps introducing fees for service?).
- Plus, I think that we are likely to see brokers more involved in negotiating fees such as establishment fees.
TRUTH BOMB: For those brokers who have been doing the right thing by their clients, they will have a loyal client base open to the changes that have been brought on by this royal commission, and it could be a very seamless transition, finally seeing brokers paid for how good they really are.
What about the planners:
Chances are that the vertically integrated model might not survive. Can we really say anything other than ‘good’?
But let’s be honest, vertical integration has been an issue for over 15 years already. Basically, since the banks moved into wealth management, allowing them to design products and mobilise an army of so called advisers to sell them. I hazard a guess that a bank teller is not an adviser, yet they were selling these products if they wanted to keep their jobs!
But it’s the dawn of a new era and I can smell the change. For one thing, new education standards being rolled out will see advisers leave the industry in droves prior to 2024, as right now you only need a diploma (RG146) that might take you a week to obtain to manage peoples’ livelihoods.
It’s now becoming very clear that some firms, especially if part of the big 5 (CBA, NAB, WESTPAC, ANZ, AMP), have been prioritising fees over service. I should think that the outcome of the spotlight in this area will be that client relations will be a top priority. Whether the clients will still trust them is another issue altogether.
Of course, along with these changes, some will be regulatory. However it wants to look like there may even be some changes at the regulatory level, and who regulates the industry, and how, may not look the same as it does now after these proceedings come to a close….we’ll be watching this space with anticipation.
If you want to start making inroads to that trust barometer… LinkedIn is a great place to start. See how here.
TRUTH BOMB: For those advisers who have been doing the right thing by their clients, they will have a loyal client base open to the changes that have been brought on by this royal commission, and it could be a very seamless transition with relevant payment structures.
What about traditional banking:
To my absolute dismay as a small business owner, I think SME’s will be hit hardest by these changes. Banks will become more risk averse to avoid trouble with regulators, the general public and of course the government.
Other areas that might be affected could be:
- Longer timeframes on decision making – not knowing whether the bank will give you a ‘yes’ or a ‘no’ creates pressure and uncertainty that can lead to poor decision making or missed opportunities in the SME space.
- The cost of accessing traditional banking services will come under pressure as banks seek to maintain their profits.
- Fees and margins are likely to creep up as the banks try to maintain their earnings.
- We may even see the banks reduce in size….SHOCKING!! isn’t it. But they will probably be doing this of their own volition as new players evolve in the market, the banks will become less relevant.
TRUTH BOMB: Just because things need to change, it doesn’t mean that all change will be good. So be vigilant and make sure you understand the alternative and what will replace them.
Non-traditional banking and finance:
The banks will suffer from their self-inflicted reputational damage, which in turn affords non-traditional lenders the opportunity to gain market share by taking the high moral ground.
However, do not make the wrong assumption. My first boss used to drill it into to me: ‘Never ASSUME, it makes and ASS out of U and ME.’ And it stayed with me.
Given the government is encouraging competition by making it easy for new entrants to the market like fintechs, specialist financiers and the like, it won’t help our plight in finding a reputable lender.
If anything, this disruption is an opportunity to take a serious look at your business to future proof it. See here for more.
TRUTH BOMB: The banks are not the only “bad guys” and non-traditional sources are not necessarily the only “hero’s”. Some non-traditional financiers would probably fare no better if they were faced with the same level of scrutiny the banks are currently receiving. It’s a fact that often people turn to non-traditional lenders because they tend to bend some rules, and because of this are often less transparent when it comes to fees and charges… Just putting it out there. Do your homework!
What can you do to get ahead of the curve?
One thing is certain, there won’t be a lack of options out there for people to choose from. This is the opportunity for you to stand out next to your competitor that may or may not have been doing the right thing all along.
So, take the opportunity to get your house in order, NOW!
- Communicate with your clients. But choose HOW you do that carefully. Some clients will need a phone call, so make sure you do that. For everyone else, send them a personal email. For those that don’t have an email, send them a letter asking them to call you.
– They chose you. They trust you with their money, so make sure you give it due respect.
- Be clear and open about what’s going on. Make it clear that you care about what is going on, and then remind them about the services you provide for them. Encourage them to call you or make an appointment to see if you should they any concerns whatsoever.
– Re-position your business as the expert.
- Build a platform of attraction that speaks to your ideal audience. Be visible online and easy to find. Make sure you have information and data available online for your clients and prospective new clients that answer those burning questions such as:
- Have you done any of those things they talk about on the news?
- Am I impacted by any of it?
- How do you personally get paid?
- How do you charge for advice?
- How do you charge for ongoing service?
- How will you be meeting the new education standards in 2024?
- Do you have sales targets?
- Build know-like-trust
I put these items in dot points, but do not be fooled! It takes a lot of time and effort to build a solid platform of attraction. It means getting your content right and to build an audience of your ideal clients to receive it. This is not a quick fix.
With more options available, SME’s that rely on debt to finance and grow their business will invest the time to explore their options that best suit their situation, believe me. Both bank and non-bank options. And if you’re not among them to be explored, you may find yourself hurting in a very big way.
Your time is now! Make the changes to your marketing strategy before the royal commission outcomes do it for you.
Sue Mills is a marketing, sales and digital specialist to the financial and professional service sector, and the owner of Sassy Marketing & Communications. With over 20 years of experience working for and with financial planners, accountants, brokers and advisors she shows her clients how to step up and out to be sustainable and thrive in their practices through adopting smart and valuable marketing strategies. Call Sue on 0477 468 888 for a confidential discussion or visit www.sassy.marketing.