Case Study Pages:
A new business model
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.
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.
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.