Changing the face of financial services

This Case Study investigates the changes that MLC and NAB have been making to the way banking and wealth management is structured throughout their organisation. As two of Australia’s most prominent financial institutions, the companies have led the way in implementing a fairer business model with the aim of improving trust and transparency in the relationship with their customers.

After reading this Case Study, students should be able to:

• Explain how successful businesses need to respond to consumer demand and innovate to meet changing needs within the marketplace
• Discuss how the financial services industry as a whole is undergoing change 
• Outline the challenges of implementing major reforms throughout an organisation
• Describe how changes in an organisation can be communicated to the customer
• Discuss the benefits of flexible workplace practices

Introduction

It is one thing for a bank to say it is listening to the needs of its customers, but quite another to see real and measurable changes actually take place.

A new business model

For almost five years MLC has been leading the wealth management industry in supporting a change in the way financial planners are paid for the advice they give their clients.

Taking the changes to the customer

To support its Fair Value agenda, NAB undertook a new brand marketing campaign called “more give, less take” which essentially summed up the new Fair Value approach.

Managing change throughout the organisation

With the size and complexity of the innovations NAB had introduced, a carefully managed strategy was needed to roll out these changes to their employees.

Conclusion

The initiatives introduced by NAB and MLC in their pursuit of improving trust and transparency have gone a long way to restoring a balanced relationship between a bank and their customers and between financial planners and their clients.

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Introduction

It is one thing for a bank to say it is listening to the needs of its customers, but quite another to see real and measurable changes actually take place. However, that is exactly what has been happening at the National Australia Bank – one of Australia’s most prominent financial institutions – using a dedicated strategy to improve the levels of trust and transparency between banks and the community. NAB and MLC are the leading brands of the Australian division of the National Australia Bank Group, a major financial services organisation that operates both domestically and in the United Kingdom, New Zealand, the United States and Asia.

MLC is the wealth management division and provides investment, superannuation, insurance and private wealth solutions, and supports the provision of quality financial advice through its financial planning networks.

NAB services millions of customers everyday through its personal, business and wholesale banking operations across Australia. Together they work to be consumer champions within their industry and market leaders in the provision of financial services. In an effort to focus on their commitment to doing the right thing by their customers and the communities in which they operate, NAB has recently re-written its mission statement under the title Our Beliefs and Behaviours (see Figure 2.)

Figure 1: MLC and NAB offer a range of financial products and services.

A successful business is often measured by how well it responds to changing needs within the marketplace. To keep up with these changes, innovative business practices are necessary – quite simply, a business cannot continue to do things the way they always have and expect to remain ahead of the market. A good example of this is the recent Global Financial Crisis (GFC). The GFC was a catalyst for consumers worldwide to become more cautious in regards to managing their finances, with many sensibly paying off or reducing their debts. In light of the turbulent economic conditions, NAB realised it had to look at things differently.

With their ‘Beliefs and Behaviours’ in mind, they set about creating a fairer business model. They wanted to do more than just run some sort of marketing gimmick or glossy advertisements. A number of initiatives were developed with the aim of providing a fairer “value exchange” between the business and their customers, including abolishing fees, increasing transparency in the fee structure for financial advice and improving access to financial services for those excluded from mainstream banking.

Figure 2: NAB’s Beliefs and Behaviours guiding their business decisions and actions.

A new business model

WEALTH MANAGEMENT

MLC: Transition to fee for advice

For almost five years MLC has been leading the wealth management industry in supporting a change in the way financial planners are paid for the advice they give their clients. Ten to twenty years ago, financial advisers were more like sales people. They were paid a commission by the various insurance, superannuation and investment companies they were authorised to represent.

MLC was concerned that commission based payments created the perception of a conflict of interest – that financial planners would be influenced to recommend products with the highest paying commissions. The relationship between a financial planner and their client is one of trust, and MLC felt that a commission-based remuneration structure only served to undermine that relationship and reduce confidence in the advice received.

In a move to improve the level of transparency, MLC introduced a new ‘fee-for-advice’ business model, making a clear distinction between fees paid to financial planners for their advice and administration fees paid to the product manufacturers for their products. ‘Unbundling’ the fees enables customers to see and understand exactly what they are paying for. It also enables the adviser to have a more transparent conversation with their client about the different fees they are paying and the value they will receive for each fee. The most important difference between a fee and a commission is the ability for the client to stop paying the advice fee if they decide they no longer want to access advice. A commission would often remain in place for the life of the product regardless of the quality of the advice received during this time.

This innovative change in the fee structure set about proving to the market that MLC was moving beyond the sales culture of years gone by, and highlighting the important contribution that quality advice makes to our community.

MLC Insurance: Best Doctors® service

In support of the business’s philosophy of putting customers first, MLC Insurance has given customers access to the internationally recognised Best Doctors medical advice service. This service gives customers the opportunity to access a second opinion on their diagnosis and treatment from leading specialists around the world. It is available to all MLC Critical Illness insurance clients for no additional cost.

PERSONAL BANKING

NAB: Commitment to Fairer Banking

In an effort to address the lack of trust in the relationship between banks and their customers, NAB committed to lead the industry in providing fairer banking for all Australians. Interestingly, NAB took action first, and talked second – an unusual sequence in an industry that consistently sings its own praises through advertising.

NAB abolished a significant range of fees, took a more compassionate stance for those experiencing financial hardship and made investments in services to equip customers to better manage their own finances.

NAB initiated these changes under the concept of a “Fair Value” agenda, with four key foundations:

Quality products and services

• By entering into a partnership with a company called rediATM, NAB doubled the number of ATMs in their network to provide greater access to fee-free banking.
• They have committed to provide more substantial information on the factors that contribute to interest rate movements so that customers can better understand how their mortgage works.

Fair fees and charges

• NAB has abolished or reduced several fees that generated more than 70 percent of customer complaints across its Personal and Business customer base. These include monthly account service fees on the most popular personal transaction accounts, overdrawn account fees and credit card over-limit and late payment fees
• They believe that fees should only be charged for services the customer values, has chosen and has agreed to be charged for
• NAB has seen its customer complaints decrease by almost half since introducing these initiatives – the biggest fall ever experienced by the bank.

Help, guidance and advice

• NAB has started providing free SMS alerts to advise customers if they are about to overdraw their account or credit card – putting the customer in control
• NAB is progressively introducing plain language in correspondence to their customers, helping them to gain a clear understanding of NAB’s products and services, free from industry jargon.

Compassion and support

• NAB commenced a staff training program with Good Shepherd Youth and Family Services to increase understanding about hardship and poverty, helping employees to look after these customers in a sensitive, caring manner
• They renamed their Hardship team “NAB Care” and increased the number of employees in the area and helped over 5000 customers experiencing financial difficulty keep their homes
• NAB introduced the “Step Up” loan; a not-for-profit personal loan scheme providing small loans to people who can’t access mainstream credit to buy necessities such as a car or fridge.

BUSINESS BANKING

NAB: Committed to supporting business

The GFC was also very tough on businesses, with banks and other lenders reducing their lending by $46 billion in the 18 months since November 200In keeping with their commitment to do the right thing by their customers, and as many of their competitors were retreating from the market, NAB increased their lending to businesses, hired more than 300 business bankers and invested in new Business Banking centres around Australia. NAB’s Business Bank also removed a number of fees that annoyed small business customers including inward and outward dishonour fees for cheques and cash handling and periodical payment deferral fees. In a recent survey, business banking customers from all of the major Australian banks were asked “Which bank has the best reputation for business banking?” 65 percent of respondents nominated NAB.

Realising the potential of people and their entrepreneurial business ideas is another area of focus for NAB’s Business bank. In 2007 NAB launched the Microenterprise Loan program, which is focused on supporting small businesses (between 1 – 5 staff) that do not qualify for mainstream finance, by providing them with access to a low interest loan. Microenterprise loan amounts range from $500 up to $20,000 and help new businesses to get off the ground. In the past three years, the program has written more than 450 loans and is growing at a rapid rate.

Taking the changes to the customer

To support its Fair Value agenda, NAB undertook a new brand marketing campaign called “more give, less take” which essentially summed up the new Fair Value approach. The campaign aimed to acknowledge that banking needs to change and that NAB was prepared to lead the way. Through their new brand campaign, NAB continues to provide proof of “more give, less take” by listing examples of their commitment to change the face of banking. More give, less take is intended to be more than NAB’s tagline – it essentially sums up their new approach.

The marketing campaign featured three new television commercials and a number of other advertising channels including radio, outdoor and online. The campaign was designed to build NAB’s presence in the marketplace and tell the Bank’s story.

A series of print advertisements based on the “more give, less take” campaign were developed incorporating facts and statistics on what NAB is actually doing, demonstrating that NAB is delivering on its promises. For example, one advertisement provides statistics on the number of customers NAB has helped to keep their homes during financial difficulty, whilst another lists the various fees and charges that have been abolished. Each focuses on the adage that ‘actions speak louder than words’.

NAB also issued a number of press releases to ensure a consistent message was delivered on the fee changes through the media.

Managing change throughout the organisation

With the size and complexity of the innovations NAB had introduced, a carefully managed strategy was needed to roll out these changes to their employees.

Research has shown that 50 percent of a company’s brand is built through face-to-face customer interactions. So for NAB to make the “more give, less take” promise real for customers, they had to draw on the strength of their people to act in what they called “The NAB Way”.

“The NAB Way” philosophy was based on the desire for NAB to be “wise, open and optimistic” and this attitude had to be evident in all customer interactions. An employee engagement strategy was developed to explain that how employees did their job was just as important as what they did and could either build or damage the bank’s reputation.

The bank faced several challenges. Like most employees of large organisations, they were time poor and constantly flooded with different messages and methods of communication. The research showed that employees wanted more opportunities to discuss business changes with their people leaders to help build their understanding. Two innovative communication tools were developed to meet these needs:

• The “It’s Our Time” Virtual Event – an ‘online conference’ which gave every Personal Bank employee access to a “live chat” with the bank’s Senior Leaders.
• The “Meeting in a Box” – a complete guide to introduce “The NAB Way” to all Personal Banking employees.

The aim of both these tools was to help employees understand what the new initiatives meant for customers, why NAB wanted to do things differently and what their role was in the overall change.

The bank also developed a program called “Working Together the NAB Way” which enabled senior leaders in the organisation to spend half a day working in the front line to make sure they hear directly from their customers and better understand the work environment of the front line employees.

Conclusion

The initiatives introduced by NAB and MLC in their pursuit of improving trust and transparency have gone a long way to restoring a balanced relationship between a bank and their customers and between financial planners and their clients.

The bank has seen a real competitive advantage emerge with customer satisfaction survey results continuing to improve, customer complaints falling and record numbers of new accounts being opened – and their successes have not gone unnoticed. NAB and MLC have received several awards including the prestigious Canstar Cannex ‘Banking Leadership Award’ for taking the lead and abolishing fees, and an ‘Innovation Excellence Award’ for introducing the Best Doctors medical service. MLC’s advice networks are consistently ranked number one in CoreData’s Major Financial Advice Group survey.These awards confirm that MLC and NAB are on the right path in their long term commitment to providing a fairer banking experience for all Australians, and encouraging more Australians to seek financial advice.