Financiers and lenders are at the bottom of the pile of trusted professionals and ‘ethics in finance’ has become a contradiction – a contradiction that’s damaging the industry. Consumers don’t trust, so they don’t engage, to the detriment of finance businesses - and themselves.
But what can the industry do about it? How do we reclaim ethics?
We spoke with the executive team at Avanti Finance, recent recipients of the Financial Services Federation’s Equifax Outstanding Corporate Citizen Award, about what it means to be an ethical finance company.
What does an ‘ethical finance company’ look like?
Every finance company encounters this challenge: it’s easy to ‘decide’ to be an ethical business but much harder to figure out how to do it in a way that resonates with customers. The Avanti Finance team explains their approach:
“People overcomplicate things. Ethics in finance is quite simple,” says Sasha Lockley, Head of Customers & People.
“It’s about walking alongside the customer, supporting them in their journey. That requires understanding their story; where they’re at now, where they’re planning to go.”
But Stephen Massey, Head of Sales & Channel, points out that it isn’t always so easy.
“Ethics can be subjective,” he explains.
“What one person thinks is ethical another might not. It’s highly individual - for staff members within a business, to customers, and to the business as a whole.”
The first step is to consider what matters to their customers. Generally, that’s going to be the direct impact of the loans they take out.
“An ethical company, fundamentally, puts the customer first. It’s about being open, having clear language, making sure the product is right and being clear what the product criteria is,” says Mike Seward, Chief Risk Officer at Avanti.
The Avanti approach is to stick to the fundamentals of doing good business: creating a product that fits. If the fit is right, you are being ethical by extension.
Legislation tries to fill the gap by setting a standard for ‘the right fit’, to protect customers from predatory practices. But with every individual customer and company being different, how effective can legislation be in defining appropriate products and behaviours across an entire industry?
Can you legislate ethics?
Consider the recent Culture and Conduct review from the FMA and RBNZ.
Regulators found significant weaknesses in the governance and management of conduct risk, though only a small number of issues related to poor conduct by bank staff. Recommendations focused on internal process improvement and board accountability, with the expectation that fulfilling these recommendations would result in a better, more ethical experience for customers.
But do these expectations result in reality?
The executives at Avanti Finance believe that while the recommendations are helpful, they don’t provide a prescriptive list of ‘ethical conduct’. Rather, ethical behaviour must be a part of the fabric of your company and relying purely on external recommendations could be more harmful than helpful.
“Ethics isn’t only about compliance, it’s about authenticity,” explains Sasha.
“You have to know who your community is and what they need; you must right-size these kinds of recommendations and take time to embed them throughout the organisation, rather than treating them as a box-ticking exercise.”
Stephen expands on this idea, explaining that while the standards described by the RBNZ and the FMA are useful for measuring ethical behaviour, they don’t actually create ethical thinking.
“The standards can create consistency in more ethical behaviour, but they don’t change the fundamental core of the business implementing them,” he says.
“My questions would be ‘does standardisation actually help customers, or does it force people down a one-size-fits-all process?’ and ‘Does a box-ticking exercise take people’s time and energy away from thinking about what their specific customers want and need, and how to be ethical around fulfilling those needs?’”
Lastly, Mike echoes the idea that ethics is based more on who makes up the company than the standard placed upon it.
“Ethics is driven by the staff and the board of the company in question. The board sets a standard and a direction, and the staff drives the company towards it. It’s a multi-directional effort. The RBNZ has said that there should be more visibility and accountability for the board, but this is just one half of the equation.”
This does not, however, deal with the fact that these reviews are not obvious to the public whose trust finance companies must reclaim. In the everyday, Joe Public cares about their experiences and their community, not the level of accountability of a bank or finance company board. Ethical behaviour must be more visible.
What about ethics beyond the customer?
Supporting local and national communities, whether that’s through charitable works or supporting local projects is an effective, visible way to rebuild trust and demonstrate that lenders are not moustache-twirling villains.
Unfortunately, the actual execution of this rebuilding often falls short.
Many times, there’s no true connection to the cause. The business picks a well-known name and throws money at it. They are ticking another box, as if it were a compliance checklist. They aren’t rebuilding their social capital by forging true connections; they are merely putting a social responsibility veneer over the top of their regular business activities.
Avanti believes that the community support that modern customers expect must be driven by something far closer to home.
“We talk to our staff and see where they find the gaps in their community. We consider where and how we can help,” explains Stephen.
“There are lots of ways a business can help out - and there’s a social or charitable project for nearly every cause. You aren’t limited.”
One example is Duffy Books: a charitable organisation that donates books to children in low-income homes to provide greater access to literature. Avanti Finance’s support of this charity was solidified by the discovery that one of Avanti’s own staff members was the recipient of a Duffy book when she was younger.
“Staff are often part of the community that you’re trying to help. They are the source of all of our charitable ideas,” says Stephen.
It bridges the gap between the staff and the community: Avanti supports the community and the community supports Avanti Finance. This visible, community-oriented, directly impactful behaviour is how the finance industry can create a positive social capital and rebuild public trust.
Avanti Finance has raised several important points: that ethics is individual but at its core is about the customer; that recent legislation is a useful measuring stick, but shouldn’t be reduced to just a box-ticking exercise; and that charitable contributions must be about making a true connection with the community.
What of our initial question: how can a finance company reclaim ethics? Avanti leaves us with a few practical tips:
Mike: “You must review your products and materials for legibility and customer use. The more understandable they are, the better you are treating your customers. This is an absolute must for ethical lending.”
Stephen: “Consider the recommendations made by the RBNZ and other reviews as a good starting point, but right-size them for your company. Implement these ideas in a way that isn’t prescriptive, but considers the needs of the customer and how they would benefit from any changes.”
Sasha: “You’ve got to talk to your staff if you want to be ethical. All charitable works and even internal process changes should start with them. They are the ones at the coalface with customers, and they’ll be the ones who know how to forge a genuine connection with the community projects. No lip service!”
The finance industry in New Zealand is facing a challenge: rebuilding trust among consumers that are more cynical than ever. However, with visible, tangible, meaningful ethical effort that breaches the walls between company, customer and community, it’s a challenge that can be hurdled. The true enemy is complacency: even companies like Avanti Finance that are being or have been recognised for their ethical efforts aren’t perfect. There’s always more work to be done.
Ethics in finance: not necessarily a contradiction, with a little work from everyone in the industry.
Avanti Finance is a NZ-based that provides finance to non-prime borrowers, including personal loans, car loans, debt consolidation and mortgages. You can find them at www.avantifinance.co.nz.