Structures Drive Poor Financial Adviser Behaviour

A recent ASIC Report that identified an “Unacceptable level of failure” by the life insurance industry was caused by conscious or unconscious systemic structures that drove the behaviour of the Financial Advisers.

Gary Ryan, Organisations That Matter, Yes For SuccessThe report goes on to say, “Our surveillance results indicate that many advisers . . . may prioritise their own interests in earning commission income ahead of the interests of the client in getting good quality advice.”

Systems Thinking teaches us that organisational structures (rules, policies, procedures and physical structures such as office layouts) influence the behaviour of the humans who operate in that system. The concept is known as Structures Drive Behaviour.

The ASIC Report found that the system provides upfront commissions for Financial Advisers in 82% of cases. The commissions could amount to around 100% of the annual premium and are therefore very lucrative. Unfortunately ASIC has discovered that 96% of the poor advice provided by Financial Advisers was when the adviser was being paid an upfront commission. There appears to be a direct link between the structure of upfront commissions and the provision of poor advice.

Leaders have a responsibility for understanding the behaviours that their structures will drive. I am not saying the leaders in the life insurance industry here in Australia understood the consequences of the structures they put in place because I don’t know.

However, as part of the characteristic of foresight, a leader should consider the intended and unintended consequences of the rules, policies and procedures that they put in place. If you work in a sales environment and you want your sales team members to share information with each other, a commission structures that is 100% based on individual performance is unlikely to drive the sort of information sharing behaviour that you desire. Instead you need to create a system (with input from your sales team members) that provides commissions for both individual and team based behaviours and performance.

Creating a service counter that is only wide enough for one person will create queues. In turn these can block thoroughfares. If you don’t want these consequences then you have to consider how you can physically design and staff your service counter to minimise queues, or you need to design a queuing system that will reduce the clogging of your thoroughfare.

A common error that leaders make is when their team members behave or perform in ways that the leader doesn’t like, the leader blames their people. Systems Thinking teaches a different perspective.

First review the structures that might be causing the behaviours and/or performance results that you don’t like. You can identify when a systemic structure is operating when you have different people come in and out of a system but the behaviours and/or performance outcomes remain the same. Often (but not always) changes to your rules, policies, procedures and/or physical structures will change the behaviours and poor performance results that you are seeing.

Of course, humans are humans and it is possible to have the best possible structures in place and humans can choose to ignore them and do their own thing. But this is a rarity compared to a norm.

If you are experiencing poor behaviour and/or performance results from your team, consider assessing the systemic structures that may be influencing these outcomes before blaming your people. After all, who wants to end up being named in a government report for leading an industry that generates poor outcomes for its customers?

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