How can financial institutions care for customers in a way that goes beyond the balance sheet?
If you were to ask financial services executives what role the sector plays in our society, some might talk about its impact on the economy. Financial planners or superannuation executives might talk about how the sector contributes to retirement incomes and outcomes. A portfolio manager might point out how the sector efficiently allocates capital to the highest returning or prospective sectors. Australia’s National Mental Health Commissioner, Lucy Brogden, offers another perspective:
“There is no doubt that a connection exists between mental health and financial wellbeing.”
Rethinking risk: why we need to consider the social impact
This is why, Lucy Brogden suggests, it may be time for a rethink of how the industry looks at the way it interacts with clients:
“With industry practices in the spotlight, it’s clear that while something might look good in the spreadsheet, when you consider all of the possible social impacts, is it good risk management to put clients in a situation which has the potential to cause financial stress?”
Indeed, the impact of financial stress on Australians was highlighted in a 2015 survey by the Australian Psychological Society which found that financial issues are rated as the top cause of stress, with 35% of Australians reporting having a significant level of distress.
Women: three pay cheques away from homelessness
In Australia, women are for the most part among the most disadvantaged when it comes to financial stress. Lucy states:
“A study by Women in Super and the Sydney Women’s Fund found that only 15% of women living in Sydney earned in excess of $100,000 and 48% earned less than $34,000. While some of this is can be explained by women not being the primary earner, we know that divorce rates mean that women are the most impacted financially when there is a separation. Most women are a mere three pay cheques away from homelessness and women over 55 are the fastest growing cohort of homeless. This is why it’s so important for us to help women develop a sense of financial independence.”
The challenge is that while working women can experience workplace stress from gender discrimination and pregnancy, men are more likely to feel the burden of being the main bread winner. Women, however are more likely to seek help than men.
KYC: Why stress points matter
Getting the best advice for clients is about instilling a culture that takes a deeper approach to traditional ‘know your client’ policies:
“We need to ask, what does ‘know your client’ really mean? You could argue that having better insight into a client’s mental wellbeing is good risk management. It makes good business sense to go a bit deeper into the human aspect of the advice we are offering clients. But many financial planners and advisors aren’t trained to have that conversation.”
Making sure disclosure helps not harms
The challenge is where to draw the line and how to ensure clients are not disadvantaged by disclosing some of the challenges they are facing.
“Although there is a business imperative to know more about the client, at the same time we don’t want to disadvantage those clients who are transparent about the issues they are dealing with. For example, we know that the minute a client seeks a mental health plan this action is notifiable under most insurance policies and can impact on a policy-holder’s ability to make a claim.”
Industry collaboration: finding a TPD middle ground
The good news is, unlike 10 years ago, the industry is now looking at ways to collaborate with the Mental Health Commission to tackle some of these issues:
“We have been trying to work with insurers to design products that offer a solution to mental illness claims which sits somewhere between no payment and TPD (Total and Permanent Disability). At the end of the day, neither the insurer nor the claimant really wants a TPD outcome – and we also know from a mental health perspective, getting people through recovery and back to work delivers the best outcome in most cases for patients. So there has to be a middle ground and we are working on that with the insurance industry.”
Bank regulation: Aspirational target or baseline?
It seems the banks are also stepping up on this front. Lucy says:
“Most of the major banks are also looking at this and it makes sense when you consider the impact mortgage stress has at both a business and societal level. In banking and finance we need to ask the question, is regulation an aspirational target or the baseline? How can we help financial institutions link values to the way we care for customers in a way that goes beyond the balance sheet? Intuitively it would seem that the ability to identify client problems early will help these institutions better monitor and manage risks.”
Finding peace of mind in retirement
While for many the aim of super in retirement is to minimise financial stress, increasingly we are realising that with longer life expectancy, compulsory superannuation is insufficient to ensure a vast proportion of the Australian population have the financial peace of mind they had planned in retirement.
“Here the conversation needs to be about models of tenancy and home ownership that can provide the certainty that retirees will have a roof over their heads.”
Lucy reminds us that relevancy is the ultimate test of social license and that financial stress is a pain point that innovation will eventually address. “The ability to help solve a problem, to fill a need is the ultimate test of the sector.”
Jeannene O’Day is a Business Development Manager at Colonial First State Global Asset Management, a sponsor of Cuffelinks.
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