Here's What's Wrong With Mathias Cormann's FOFA Rollback

Treasurer Joe Hockey and Finance Minister Mathias Cormann (Photo: Getty)

Yesterday, Finance Minister Mathias Cormann put in place the new regulations which wind back a number of the key reforms under the previous government’s FOFA, Future of Financial Advice, changes.

He did that regardless of the Senate’s call last week for a Royal Commission into the actions of the Commonwealth Bank’s financial planning business.

One of the “compromises” that Cormann announced which buttressed him to pass the regulatory changes yesterday was that frontline tellers would not be able to be paid commissions for selling or referring products.

But that doesn’t mean that banks can’t still set “referral” and “sales” targets, as many highlighted last week, which is exactly the way many banks incentivise their teller staff to do more than just process transactions.

It’s the financial services equivalent of “Would you like fries with that?”

But a report this morning in the SMH shows exactly why Cormann’s approach is, at best, naive.

The SMH reported this on an “explosive” Finance Sector Union survey of 800 frontline telling staff at the Commonwealth Bank in May:

Pressure on bank tellers to push customers into Commonwealth Bank financial products such as insurance and managed funds is causing stress, depression and bullying, according to an explosive new survey of staff.

The survey obtained by Fairfax Media says the pressure of chasing sales targets is also leading to fraud at the bank.

The Commonwealth Bank told Fairfax the survey was flawed. That may be true, because as a behavioural finance guy, I know the questions you ask will drive the answers received.

But if staff are stressed over sales targets, and their ability to meet them, then they are also stressed about their jobs, which behaviourally changes the incentive structure from what bank managers might suggest were passive sales targets to something more aggressive.

Of course in some rare instances this can lead to fraud and misrepresentations, the very things the Commonwealth Bank is under pressure about and what drove the collapse of Storm Financial.

A staff member in Queensland reports in the survey that fraud is again occurring and noted: “When people are under pressure to achieve targets they will do these things.”

Which is why Mathias Cormann’s rollback of the FOFA changes to the financial planning industry is flawed. Tellers may not be able to be paid commissions for referrals or non-advice products but incentive structures which are just as powerful remain in place.

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