Australia has arrived at a multimillion dollar Royal Commission as a result of a slow and steady erosion of public trust in our finance industry.
From banks to super funds, financial advisers, and insurance companies, this erosion of trust has permeated and damaged the entire financial services industry and will take a whole-of-sector effort to rebuild.
Australians entrust the finance sector with their most significant assets — their savings — which encapsulate people’s very well being and chance at a good life.
This is the heaviest of responsibilities and one the industry must reflect deeply upon in all our actions.
It is only by concertedly placing the consumer front and centre of the financial services sector that we can start on this path back to regaining people’s confidence.
Consumer primacy means developing and providing products and services that reflect our clients needs and values.
There is an expectation that people operating in finance will endeavour to know their clients before offering advice and act in their clients’ best interests. However, for far too long, we’ve paid little consideration to what this truly means.
Acting in the best interests of clients means knowing our client first, their financial needs, their life stage, goals and, importantly, their personal values.
We cannot properly provide financial services without all of these – whether that is helping establish an SMSF, choosing the right investment option in a superannuation fund, offering credit cards, or extending home loans to clients.
Australians expect no less in entrusting others to manage their money. Consumer research conducted last year by the Responsible Investment Association Australasia showed that nine out of ten Australians expect their money to be managed with consideration of their personal values and ethics, alongside their financial interests.
This includes consideration of the social and environmental impact of their investments, whether it be avoiding investments that contribute to human rights violations and animal cruelty, or supporting investments that deliver improved healthcare, education and renewable energy.
Notably, Australia is not alone in its journey to realise a financial system that is fair, equitable and sustainable for all.
A new and groundbreaking report out of Europe provides powerful insights for Australia around reconnecting finance and investment with the real economy and the preferences of consumers.
The report, prepared by the European Commission’s High Level Expert Group on Sustainable Finance, highlights the opportunity for finance to achieve economic prosperity, social inclusion and environmental regeneration, and provides a roadmap for making Europe’s financial system sustainable for the long term.
Consistent with Australia, the report notes ‘considerable evidence’ that individual investors prefer long-term sustainability issues to be considered by their investment providers.
Correspondingly, the report’s recommendations include linking the fiduciary duties of investors to the time horizons and sustainability preferences of the individuals and institutions they serve.
It also recommends investment advisers to be required to ask about, and respond to, investors’ preferences about the impact of their investments as a routine component of financial advice.
The European Commission report highlights the role of responsible investment in delivering a stronger and more sustainable economy, by refocusing investments on longer-term horizons, building the infrastructure for the future and shifting finance back towards a focus on beneficiaries.
The report’s observations, aspirations and recommendations are as relevant for restoring trust in Australia’s financial system as they are for Europe.
Fortunately, there is a move underway in finance towards more responsible investment and banking, with momentum coming from diverse quarters — from global asset managers to retail investors.
Already this year, the leadership of some of the world’s largest money managers have made a splash advocating for chief executives to focus attention to their company’s broader purpose, moving beyond the emphasis on short-term financial performance, to responding to broader social challenges and becoming a ‘force for good’.
As noted by BlackRock chief executive Larry Fink, ‘society is demanding that companies, both public and private, serve a social purpose’.
Consumers, too, are rapidly voting with their feet, shifting their savings, super, banking and advice towards ethical and responsible financial businesses.
These people are proving to be loyal customers when they see how responsible investing can deliver on their financial goals, whilst their capital actively does good and avoids harm.
It’s clear that financial services organisations that orient and position themselves with a broader triple-bottom-line approach will continue to reap the rewards in growth of customer base, so long as they deliver on their promises.
However, for the sector to regain the trust of the public, it will require a whole-of-industry examination and effort.
Many of Australia’s biggest financial institutions were established to service and benefit the community. The Royal Commission provides a unique opportunity to reflect upon their purpose, return to these roots and reconnect with money’s higher purpose in helping deliver us a world we all want to live in.
Simon O'Connor is the chief executive officer of the Responsible Investment Association Australasia.
