Cross-Selling Provokes A Heated Debate In Banking, Australian Financial Review Writing, Financial Report Writing - Accounting Assignment Help

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The Australian Financial Review
The godfather of the cross-selling cult in Australia's financial sector insists the strategy still works, despite Suncorp chief executive Michael Cameron declaring it a failure. But former Westpac chief executive Bob Joss, who brought cross-selling to Australia in the early 1990s after his two decades at US giant Wells Fargo, has warned that institutions that cannot show their selling processes are independent will suffer. "The important thing about cross-selling is that each individual product has to be good," Mr. Joss told The Australian Financial Review.

"You can't get away with an inferior product just because you have it under one roof."Mr. Joss, who is now a professor at the Stanford Graduate School of Business in California, served as Westpac chief executive from 1993 to 1998 after being recruited from Wells Fargo. He is largely recognized as the man that brought the culture of cross-selling to Australia's high-performing banks that have strived to emulate the Wells model.

Despite questions surrounding the ethics of cross-selling, and a declaration last month by Suncorp boss Michael Cameron that it "didn't work", Mr. Joss remains a firm believer in its benefits for both buyer and seller. "It's certainly easier to acquire customers because it's cheaper and more economical, so the savings can be passed on. We know that customers who have three, four, five or six products linked are just better customers for the bank. The servicing costs per account are lower and the profitability is higher."

The issue of cross-selling is causing heated debate in what is a politically charged era in banking, amid accusations that staff are being bullied into flogging too many products to customers. During the parliamentary hearing on Friday, NAB chief executive Andrew Thorburn received sustained questioning about the impact of remuneration incentives on the bank's culture and whether it encouraged cross-selling. "I don't think our incentives are strongly targeting and encouraging product selling," Mr Thorburn said.

In Australia, the dominance of large banks and insurers has led to further concerns that they are using their immense reach to sell inferior insurance and wealth products. At Suncorp's results in February, Mr Cameron weighed into the debate, saying that cross-selling of insurance and wealth management products has never worked.

"I haven't seen cross-selling being a good concept for customers … it has not worked anywhere in the world. When I talk to ASIC or APRA, it's very hard not to argue that that's not a sensible outcome for the customer," he said. "It's not a sustainable model, it's not about ringing up our bank customers and offering them an insurance product," Mr. Cameron said after the Brisbane-based bank and insurer presented its interim profits.

Bell Potter analyst Lafitani Sotiriou said the fully integrated model had to "evolve". "There are risks when there is [a] high propensity to push own products, and particularly it is difficult [for advisers] to use other products," he said. Mr. Sotiriou pointed to the rise of fintech players such as Hub24 - the "comparative minnow" had more flows than AMP did in the last quarter. "This is a sign that things are changing for the vertically integrated model," he said.

Mr. Joss agrees that for non-commoditized services like wealth management, where "someone has potentially a substantial amount of money that you manage and help grow", the banks must take on more care. "It's a much more sophisticated service, and you do have that overriding need to be a responsible fiduciary.

"Are you using wealth management to sell your own products, and are you really a fiduciary? Are you at arm's length, giving them the best possible deal?" Mr Joss said the question as to whether the biggest financial institutions are able to use their reach to sell their own products as "an empirical one". "That is an empirical question - where is wealth being managed and how well are the independent firms doing relative to the larger institutions? I don't know the answer in Australia, but in America, the independent firms are a lot more dominant." According to Investment Trends figures, most financial planners (44 per cent) are aligned to a major financial institution, while 13 percent sit in bank branches. The "big four" banks, along with the largest listed Australian wealth management company AMP, still dominate the landscape.

Mr. Cameron said Suncorp was concentrating on a marketplace model that sees it offer products and services to its customers, but also consider products manufactured outside the business but sold under Suncorp brands. We sell health insurance under the brand names of Suncorp and AAMI, and that is manufactured by NIB and distributed by us. We also sell an annuities product branded Suncorp and that's actually manufactured by Challenger," Mr. Cameron said. "We are trying to see if we could get a better outcome partnering with companies or divesting from manufacturing."

Mr Joss's arrival from Wells Fargo, where he spent 22 years, brought with it the adoption among Australia's banks of its celebrated cross-selling strategy. It was during his time at the San Francisco lender that he realized it was better for customers, and for the bank, to think in terms of customers, not products.

"We thought it was critical to be customer, not product, oriented, to get certain customers attracted to the bank. To see what their needs were and try to match that with our array of services - it didn't mean selling every product we had, but it meant that where it made sense, to see that they had the right array of financial services."

The Wells approach to banking, and the success that followed, led to widespread admiration and adoption of cross-selling. The bank has long been a favoured investment for Warren Buffett's Berkshire Hathaway, surviving through the financial crisis with its reputation largely intact.

But a cross-selling related scandal claimed the scalp of the chief executive John Stumpf in 2016 as it emerged that the bank's staff, under intense pressure to hit cross-sell targets, were creating thousands of
fake accounts. The cross-selling scandal was mirrored in Australia.

A report from the Financial Sector Union revealed accounts of bank staff being bullied by managers to hit cross-selling targets. Some tellers complained they were beginning to mirror McDonald's staff - asking customers  if they wanted "fries with that?"'

Mr. Buffett lashed Wells Fargo last week but blamed the scandal on incentives rather than cross-selling. "A huge mistake was made at Wells," Mr. Buffett said. "Not in cooking up the incentive plans - cross-selling is fine, I mean, you want to have incentives for people to do it - but you don't want to have it lead to crazy behavior, which it did."

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