The horror stories coming out of the royal commission this week about life insurers flogging policies to vulnerable Australians make a strong case for banning direct sales.
But there is an inherent danger in dismantling the monster that probably drives a fair chunk of a free market economy. If Hayne and his counselors assisting are taking aim at the direct sales model, which they clearly are, then they better have something decent to put in its place. Otherwise, there are going to be thousands upon thousands of cold callers from Melbourne to Manila looking for work, not to mention the things that stripping a sales engine would do to the hulking machine-like companies that run off them.
The royal commission has a beef with sales. That much is clear from the last five rounds. The sixth round that’s currently underway is really hitting home the point the inquiry is trying to make: selling things to people who may not want or need them is very bad!
Consider what would happen, though, if regulations are put in place to prevent the financial services community from selling things to people who haven’t requested them? Bank earnings wouldn’t be looking too hot, I can tell you that much.
Cold calling in sales is such an important part of the financial system that removing it, hell, even slapping clamps on how it is done, could have major implications for the viability of the companies who rely on teams of salespeople to effectively flog their wares.
Sales is arguably emerging as Hayne’s chief enemy; his archnemesis, if you will. The royal commission is very concerned with how things are sold. The process. The exchange. The promise. The payment. The outcome.
For good or ill, the entire financial system has been built on a sales culture that was never meant to be put under the blinding glare of a public inquiry like the one Hayne is running. Boiler rooms and pressure selling are ugly things that should be kept behind closed doors. The sales script was never meant to be leaked!
But the cat is out of the bag now and the Australian public are quickly learning a few home truths about how capitalism really works. It has been happening for a long time and inertia was always meant to play out. Throwing a spanner in the works at this stage of the game would not just upset the apple cart, it would overturn the entire farm.
Think of the sales agents earning bonuses and commissions, who have come to rely on that income and built lives and bought houses and started families with it.
Consider the companies with hundreds of sales agents. The service centres in Manila and Mumbai. The investors who own shares in these companies, enticed by their strong balance sheets and year-on-year profit growth.
There is the way things are and the way they ought to be. Then there is the law, which the royal commission is also very persistent about.
After hearing that life insurer ClearView failed to reprimand its head of direct sales, who knowingly attempted to break the law and circumvent the FOFA reforms, the group’s chief risk officer, Gregory Martin, gave us a critical assessment of a direct life business operating in 2018.
Counsel assisting Rowena Orr QC asked him: “In your view, is it possible to sell life insurance via outbound sales calls in a way that is financially viable and legally compliant?”
“In retrospect, I see it’s difficult to reconcile both those things,” Mr Martin said.
“It would be possible to make it legally compliant, my difficulty, personally, is that I don't understand how [a] customer in a phone call that lasts 20 minutes can come to a view, to understanding what they have bought in a complex area of financial services. I personally think it’s problematic.”
Complexity - one of the best words in the arsenal of any great financial services marketer. Problem is, if the poor bugger on the other end of the phone actually understood what they were being sold, they’d never buy the bloody thing.