macquarie private wealth australia · macquarie private wealth australia independent risk culture...
TRANSCRIPT
Macquarie Private Wealth Australia
Independent Risk Culture Review
Final Report
May 2013
Confidential & Commercially Sensitive
MGL.0001.0003.0187
2
Contents
Executive Summary 3
Areas of Strength 11
Theme 1 – Inertia 13
Theme 2 – Risk insight clouded 21
Theme 3 – Freedom without boundaries 29
Theme 4 – Short-term focus 35
Theme 5 – Sidelined risk function 45
Appendix 1 – Data sources 49
Appendix 2 – Tier 1 Analysis 53
Confidential & Commercially Sensitive
MGL.0001.0003.0188
4
Establishing a strong and enduring risk, compliance and control culture requires a dual focus on both “hard” and “soft” dimensions. Challenges that will likely require special
focus include.
‘Hardware’ ‘Software’
Executive Summary
The Risk Culture Review has identified systemic failings across MPW’s risk mindsets and behaviours, with issues found across all risk indicators. The extent of the challenge
is greater than those identified during other Risk Culture Reviews.
Key findings have been grouped into five inter-relating themes
1. Inertia – At multiple levels, people are disinclined to shift the status quo; as a result the business has failed to adapt to changes in its environment
2. Risk insight clouded – MPW does not identify, share or analyse information effectively to develop insight on risks facing the business
3. Freedom without Boundaries – ‘Freedom’ and individualism are core values, creating difficulties such as executing a cohesive and effective risk governance model
4. Short-term focus – Overwhelming emphasis on short term performance over longer-term, sustainable business performance and reputational standing
5. Sidelined Risk Function – The risk function has been ineffective at strengthening a culture in MPW that values and instils good risk and compliance practice
Key Findings
Challenges to Remediation
Addressing ASIC’s concerns will require significant change to MPWs formal organisational and governance mechanisms, however these will fail unless an equal
and aligned focus is applied to resolving the identified risk culture weaknesses, and there is immediate focus on creating the right conditions for change
Organisation
• A number of organisational weaknesses
undermine the ability to drive change;
e.g., flat leadership structure
Leadership
• Lack of capacity, capability, role clarity
• Lack of leader alignment and ‘learned helplessness’
Mindsets & Behaviours
• Immediate focus on FoFA for July 1, communications are silent on the EU fuelling potentially destabilising anxiety
• MPW is unused to and unprepared for large scale change and impaired by uncertainty around strategic direction
• ‘Client is the Adviser’ mindset that may undermine the ability to consistently deploy change
Formal organisational and governance
mechanisms that are intended to control
individual behaviour
Individual and collective values, beliefs, mindsets and behaviours
Independent Risk Culture Review of MPW Australia within scope for the Enforceable Undertaking (EU)
Summary
Confidential & Commercially Sensitive
MGL.0001.0003.0190
5
Context
The Risk Culture Review is based on Macquarie’s Risk Mindsets & Behaviours (RMB) methodology.
This report outlines the findings from the Independent Risk Culture Review within MPW Australia
Methodology
Risk
Culture Survey
• 86 questions to gain
perspective on
prevalence of risk-
related behaviours
• 468 Responses (79.4%)
Behaviour
Interviews
• Interviews to observe
risk behaviours &
perceptions
• 77 interviews across
levels, roles & 5 states
Organisation
Mechanisms Review
• Mechanisms review to
understand how the
reinforce risk behaviour
• 125 artefacts reviewed
Deep
Structured Interviews
• Interviews to identify
mindsets & root causes
driving risk behaviours
• 43 interviews across
levels, roles & 5 states
Fact
Based Analysis
• Targeted analytics to
reinforce understanding
of predicted root causes
where necessary
Tier 1 Tier 2
• This report provides a synthesis of observable risk behaviours and root-causes identified with evidential examples from the data points described on page 6
• The purpose of this report is to facilitate the playback of analysis and findings to enable reflection and establish issue ownership among MPW leadership and other key
stakeholders
• The next step in the review methodology is to define specific remediations to address the root causes identified through this review
• The risk culture remediations provide specific detailed design considerations for the EU Implementation Plan deliverables and the overarching change strategy
Overview
Interpreting Findings
Final Report
Objectivity • The risk culture assessment methodology leverages a number of different techniques and data sources to provide objective insights and
negate the potential influence of individual reviewer unconscious bias
Perception Vs. Fact • Many of the presented insights are collated through interviews and reflect the observations, perceptions, beliefs or values of individuals in MPW
– these are presented as perception
• Where possible fact-based analysis has been employed to evidence, substantiate or understand pervasiveness of these perceptions
EU Context • Assessing risk culture in the context of a recent EU may amplify negative perceptions and subsequent conclusions
• As noted above, the methodology employed in this review leverages fact-based data such as organisational mechanisms, risk outcomes and
quantitative analytics to validate and further understand perceptions. All high level conclusions take into account a range of data to minimise
the impact of contextual bias
Confidential & Commercially Sensitive
MGL.0001.0003.0191
6
Data Sources
26 52 22
The report uses a number of tools and evidential examples from the data sources to support conclusions
Overview of Data Sources*
*A more detailed explanation of data points is included in the Appendix 1
Organisation Mechanism Reviews
• A review of MPW business policies, processes,
procedures and enabling systems has been
conducted to understand how these reinforce a
clear expectation of behaviour
• Artefacts were evaluated against the Risk Mindsets
& Behaviours Framework
That’s where it helps when you work
with a planner – they can do the
compliance and planning.
Risk Culture Survey
• Numbers represent percentage distribution of
responses, excluding the responses of those who
answered ‘N/A’.
• Unless otherwise stated, the graph relates to all
respondents
People in MPW are inclined to take excessive risk
Agree, Strongly
agree
Neutral Strongly disagree,
Disagree
Behaviour Interview Analysis
• Numbers represent the different categories of risk
behaviours identified (detrimental, developing and
desirable) as ‘more like MPW’ when an
interviewee was questioned on a given Risk
indicator
Interview Comments
• Quotes from the survey, behaviour, and deep
structured Interviews have been illustrated in
speech bubbles
• These verbatim quotes have been extracted from
notes taken during interviews
• Demographic information has not been provided to
protect the confidentiality of interviews
23 29 28
“Behaviours relating to incentives and consequences”
Desirable Developing Detrimental
%
distribution
%
distribution
Fact Based Analysis
• Hypothesis-based analysis has been used to
confirm if perceived behaviours are actually
occurring and to draw insight of knock-on effects
Driver Trees
• Driver trees were used to synthesise codified
analysis of interviews and illustrate the underlying
root causes of each theme and subtheme
Confidential & Commercially Sensitive
MGL.0001.0003.0192
7
Key Findings
Findings from the Risk Culture Review have been grouped into five inter-relating themes
1. Inertia | At multiple levels, people are
disinclined to shift the status quo; as a result
the business has failed to adapt to changes in
its environment
3. Freedom without boundaries | ‘Freedom’
and individualism are core values, creating
difficulties such as executing a cohesive and
effective risk governance model
4. Short-term focus | Overwhelming
emphasis on short term performance over
longer-term, sustainable business
performance and reputational standing
5. Sidelined risk function | The risk function
has been ineffective at strengthening a
culture in MPW that values and instils good
risk and compliance practice
2. Risk insight clouded | MPW does not
identify, share or analyse information effectively
to develop insight on risks facing the business
Self-
perpetuating
cultural drivers
Management
style and
decisions
Freedom
without
boundaries
Sidelined
risk function
Short-term
focus
Confidential & Commercially Sensitive
MGL.0001.0003.0193
8
Summary of insights
1 | Inertia
At multiple levels, people are disinclined to shift the status
quo; as a result the business has failed to adapt to changes in
its environment
Impact
• Regulatory consequences with significant costs and reputational damage
attached
• Failure to respond effectively to external expectations e.g. FoFA
• Recurring failure to uphold internally-set standards
• Challenge for MPW to effectively mobilise and embed the required
changes of the EU implementation plan
Key drivers
A. Leaders do not drive change
B. Learned helplessness prevents people at multiple levels from trying to
initiate change
C. Advisers are unmotivated to spend time improving their compliance
capability
2 | Risk insight clouded
MPW does not identify, share or analyse information
effectively to develop insight on risks facing the business
Impact
• Gaps in senior leader appreciation of serious risk management
inadequacies
• Exposure to unacceptable levels of unmitigated risk
• Inability to respond proactively to risk issues
Key drivers
A. Information flow is stymied
B. The organisation has weaknesses across a range of capabilities that would
improve its ability to recognise and appropriately respond to issues
C. Failure to challenge and ineffective escalation
Theme 1 and 2 are self-perpetuating and multi-faceted aspects of the culture that will be challenging to shift
Confidential & Commercially Sensitive
MGL.0001.0003.0194
9
Summary of insights
3 | Freedom without boundaries
‘Freedom’ and individualism are core values, creating
difficulties such as executing a cohesive and effective risk
governance model
Impact
• Principle that ‘the client is the adviser’ undermines MPW ability to establish
and maintain minimum standards regarding compliance and quality of
advice
• Difficulty providing appropriate and standardised tools and processes to
facilitate effective and efficient compliance outcomes
• Challenging to align, influence and hold people accountable for shared
organisational goals – e.g., management of reputational risk
• Inability to capture benefits of a more team-based environment including
peer review, coaching and tailored training
Key drivers
A. Organisational model and capabilities result in few explicit boundaries
being set across the business
B. There is little acceptance by many Advisers for the (few) boundaries
that are set
4 | Short term focus
Overwhelming emphasis on short term performance over
longer-term, sustainable business performance and
reputational standing
Impact
• A one dimensional driver of revenue among advisers, in some cases
resulting in decisions that compromise integrity, client's interests and
Macquarie’s reputation
• Tight cost management and lack of investments in systems and people
• Multiple ‘band-aid’ solutions that, over time, have simultaneously decreased
effectiveness and increased the cost of compliance relative to peers
• Lack of selectivity on recruitment and acceptance of advisers with
questionable reputations
Key drivers
A. Leaders are regarded as overwhelmingly short-term revenue and cost
focused
B. Adviser/broker culture exacerbates over-emphasis on revenue
C. Broader Macquarie and industry environment places extreme focus on
financial targets without adequate balance on other goals
Themes 3, 4 and 5 are reinforced by a combination of management factors, but possibly less challenging to address than Themes 1 and 2
Confidential & Commercially Sensitive
MGL.0001.0003.0195
10
Summary of insights
5 | Sidelined risk function
The risk function has been ineffective at strengthening a
culture in MPW that values and instils good risk and
compliance practice
Impact
• Ineffective management of issues, allowing them to reoccur
• A dogmatic approach to risk management that fails to respond
appropriately to changes and needs of the business
• Emphasis on monitoring rather than analysis and insight meaning that
material risks may not be identified
Key drivers
A. The risk function is unable to effectively influence the business
B. Risk staff are not incentivised to drive genuine impact
Themes 3, 4 and 5 are reinforced by a combination of management factors, but possibly less challenging to address than Themes 1 and 2
Confidential & Commercially Sensitive
MGL.0001.0003.0196
12
Strong client orientation amongst a core group of advisers,
particularly Financial Planners
Areas of strength
New leadership recognised as a strong symbol of change
• Financial Planners recognise that long term client relationships are critical to
the sustainability of their business models
• Planners are more focused on compliance activities, evident in the number of
breaches received relative to brokers (see chart below)
• Many planners welcome FoFA changes and the resolution of issues raised in
the EU, providing a capability and behaviour foundation to build upon
• New MPW leadership and direction have set the stage for transformational
change
• Most people recognise the EU as a catalyst for greater focus on risk and
compliance
This kind of regulatory change is a
once-in-a-lifetime opportunity. It’s an
opportunity because it’s a good thing for
clients. So the question is, how do we
make the most of this opportunity?
Financial Planners are very strong at
Risk and Compliance. They come from
a background where all plans are written
by Para-planners before advice is given,
so record keeping, keeping file notes
etc. is embedded in their culture
There has been a lot more engagement
with advisers post EU Because of the EU people’s behaviour
is starting to change…Whether it’s
because of Bill and Greg Ward watching
or whether they feel personally
responsible because of the EU... there
has been a big change since December.
Recognition of need for change has led to some emerging teaming
and collaboration
• Some Adviser recognition of the need for strategic solutions to FoFA – e.g.
Brokers partnering with Financial Planners
• Positive examples of ‘Informal’ teams and networks operate within larger offices
That’s where it helps when you work
with a planner – they can do the
compliance and planning.
I partner up with a Financial Planner… I
have a strong belief that we're better off
offering a holistic service to clients
I want to be a better stockbroker - to do
this, I need more technical training in my
area and to complement this by
partnering up with a Financial Planner.
Whilst the focus of the Risk Culture Review has been on identifying improvement opportunities, some strengths emerged for MPW to build upon
Average breaches per person 2012*
Until Bill started it was the wild west
Advisers are there to look after their
clients – they will put them first, do the
best thing
FOFA is exciting. It’s the last cleanup.
The downturn in the market has already
done an initial hosing down, and now it’s
time for the final cleanup
I think they [advisers] can change – I
have seen this post EU and with FoFA
requirements. I’ve actually been
surprised to see some able to adapt
* Based on a headcount of 60 Financial Planners, and 320 Brokers obtained from staff
listing as at 6/12/12
0.76
0.08
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
Brokers Planners
Confidential & Commercially Sensitive
MGL.0001.0003.0198
14
2339 38
50 40 10
1
2
3
4
5
2011 2012 2013
J M A M J J A S O N D F Mar A M J J A S O N D J M F
Inertia – Impact
Few organisational levers have proven effective at driving a
change in behaviour amongst certain advisers
The consequence of inertia has
been paralysis on key issues
View that risk management policies have been
slow to adapt to internal and external changes
Impact of ‘inertia’
• Regulatory consequences with significant costs and reputational damage attached
• Failure to respond effectively to external expectations e.g. FoFA
• Recurring failure to uphold internally-set standards
• Challenge for MPW to effectively mobilise and embed the required changes of the EU
implementation plan
Risk
All
MPW is quick to adapt its risk management policies,
processes and procedures as significant changes occur
in the business Adviser View (esp.
from risk
staff) that
adaptability
in risk
function is
slow
Certain
advisers
continue to
breach over
and over
Selection of Most Frequent Breachers, Number and Distribution
of Breaches, Mar 2011 – Mar 2013
At multiple levels people are disinclined to shift the status quo; as a result, the business has failed to adapt to changes in its environment
Risk Culture Survey results, % distribution
Agree, Strongly
agree
Neutral Strongly disagree,
Disagree
People are too scared to change the
model...and we now have an EU which is
costing an enormous amount.
We've struggled
and lost
enthusiasm for
fighting.
-Risk
The change in
mindset required
is [our] biggest
challenge.
MPW tried to change and the problem was
resistance to change - it was quite real –
from leadership and management levels,
through to the practitioners.
Leaders do understand the
issues/concerns, but they don't want to
significantly change the culture or invest
lots of money and commitment to execute
change. Although the breach process is arguably flawed, the data illustrates that when
breaches are issued, this does not change behaviour amongst the worst offenders
Confidential & Commercially Sensitive
MGL.0001.0003.0200
Inertia – Drivers A
Inertia Learned helpless-
ness
Change impetus at leadership
level is weak
Low discretionary
effort
Lack of insight into
need for change
Lack of a unifying purpose to drive change
Difficulty creating a compelling, cohesive vision
Belief that trying to get advisers to conform will be fruitless
Influential State Management level creates localised identity and focus, and a barrier to higher level, division-wide purpose
Flat leadership organisation structure, geographic spread and size of business decreases practicality of personal leadership engagement
FOFA, EU and general external environment have made it difficult to predict ‘what the future holds’ for people in MPW
Many individual cultures (e.g. Brokers vs Planners, team ‘acquisitions’) difficult to reconcile into a single compelling vision and purpose
Highly independent values of adviser population somewhat ‘at odds’ with creating a single vision
Fear that advisers who don’t buy-in to the vision may choose to leave (and take all their clients with them)
See ‘Risk Insight Clouded’ driver tree
No accountability for longer-term goals
Organisation structure
Personal ‘ownership’ of longer-term goals is weak
Central staff who receive profit share are incentivised based on short-term BHAG
achievement
Very strong focus by senior leaders on BHAG gives impression it is the ‘only thing that matters’
Past experiences of being guided to prioritise short-term BHAG leads to perception that this is a general principle
Little articulation of who is accountable for longer-term goals
Intense focus on BHAG undermines prioritisation of longer-term goals
Perception there are few consequences for failing to meet longer-term goals
Diffusion of accountabilities across multiple committees undermines individual accountability
In some cases, ‘empire building’ in head office roles has resulted in diluted focus in key functions that should be more focused on longer-term outcomes
Management structure inhibits decision making
Barriers to decision making
Interpersonal styles a barrier to achieving alignment
Difficulty achieving agreement across complex web of committees and individual
stakeholders
Scope of role/concentration of control makes it unfeasible for senior leaders to be
across everything in a timely manner
Strong personalities that overpower discussions, leading to ‘agreement’ in meetings,
but not genuine buy-in
In some people/situations, a preference to avoid open conflict, resulting in avoidance
rather than honest conversations
1
2
1
Key drivers
Branches over page See evidence under corresponding
number on following page n Theme 15
Confidential & Commercially Sensitive
MGL.0001.0003.0201
23 21 57
29 14 57
26 52 22 52
30 23 47
Inertia – Evidence A
Little impetus to set aspirations to improve risk and
compliance if it might result in lower financial performance
A lack of open, constructive debate amongst leaders regarding
key risk issues stifles the drive for change
Focus on goals
overrides other
drivers like risk
appetite
MPW's business objectives are consistent with
Macquarie's risk tolerance
People in MPW are inclined to take excessive risk
DD
Risk management concerns are discussed openly and
honestly in MPW Australia
AD
SM
Mgr
AM
SA
Assoc
Especially at senior levels,
there is a perception that
risk issues are not debated
freely
1 2
Change impetus at leadership level is weak
Agree, Strongly
agree
Neutral Strongly disagree,
Disagree
Agree, Strongly
agree
Neutral Strongly disagree,
Disagree
If Bill has to make money over the next two years
and change the culture he will fail...Greg and
Nicholas will say the business has to make money.
For Head Office to ignore the need of advisers (and
ASIC’s requirements) for SO LONG without us
seeing positive change makes me wonder about the
bonus structures at head office and if change is a
genuine concern.
If I'm used to getting paid more
by generating revenue as
efficiently as I can and you want
me to do something to reduce
risk and there is no upside for
me and no downside if I don't do
it, except for making the state
manager unhappy, then I won’t
do it.
People seek to build up empires. If you are doing
this, the core influence is building your empire and
you might end up ignoring risk. This is driven by
promotion and profit share - people get promoted if
they grow their empires.
The personality of ExCo members
[varies]... there is a low level of
leadership training. Bully behaviours
[are used to] shut down others. There is
an inconsistent way of pulling up the
aggressive leaders... no-one will actually
say it’s wrong.
Maybe we could have pushed and
peddled harder [but] that’s the nature of
big organisations...
It's very closed doors, so critical
decisions won't always involve the right
people. I think the corridor
conversations need to stop. Why no
decisioning? Too many people. Eric had
more than 20 direct reports. He inherited
all these legacy reporting lines with
people who felt they were entitled to
report directly to the head of the
business.
Risk Culture Survey results, % distribution Risk Culture Survey results, % distribution
50% of the leaders wanted this
change to happen but didn't
have the tools/systems/
mechanisms or the conviction
to see this change through.
29 25 46
36 23 41
37 25 37
50 8 42
44 23 33
16
Confidential & Commercially Sensitive
MGL.0001.0003.0202
Inertia – Drivers B
Key drivers
Belief that initiating and succeeding with change is impossible in this business
Perception that scale of change is too difficult to overcome in this instance
Belief that leaders are disconnected from ‘reality’
Experience/perception that leaders don’t listen to feedback on need to change
Belief that leaders do not know the true state of the business (because depth and breadth of connection to the offices is hampered by size and distance)
View that leaders are not ‘strong enough’ to make change stick
Perception that past leaders quickly ‘gave up’ on their promises to introduce change
View that there is a disincentive for leaders to move away from the status quo
Perception that State Managers have far more influence with advisers than senior leaders
Perceived ‘inherent’ barriers
View that it is ‘impossible’ to shift brokers away from their inherent nature which is at odds with required changes
View that it is ‘economically impossible’ to have sufficient management required to drive/sustain change with current number of advisers (and size is necessary to achieve required profit)
View that required changes are impossible to make in the time frame available (e.g. due to extensive backlog that exists)
View that legislation requires behaviour that is impossible to balance with commercial goals of revenue generation activities
Organisational inadequacies
Belief our systems are inadequate to support required change
Belief our approach is ‘un-sophisticated’/inadequate to achieve genuine change (e.g. tick-a-box, admin focused, not adviser or client-centric)
Belief Macquarie doesn’t have enough capacity in the risk function to drive/sustain change (e.g. compared to other firms)
Perception that leaders have a general principle that if you are told once ‘there is no money’ don’t bother asking again
Perception that many risk staff have critical gaps in their experience and knowledge of risk, compliance and/or the business
Belief that ‘400 business models’ strategy is an unchangeable assumption, and a barrier that cannot be overcome
1
2
Branches over page See evidence under corresponding
number on following page n Theme
Inertia Learned helpless-
ness
Change impetus at leadership
level is weak
Low discretionary
effort
Lack of insight into
need for change
17
See ‘Risk Insight Clouded’ driver tree
Confidential & Commercially Sensitive
MGL.0001.0003.0203
19 45 35
13 88
Inertia – Evidence B
View that deep-seated barriers prevent leaders from initiating and
succeeding at change within this business
Perception that scale of current challenges (e.g., FoFA) are
almost too difficult to overcome
Onerous/complicated processes
are one of the main reasons why
people fail to comply
Too much credit or creed around here is
based on precedents... We can't do it now
because we didn't do it in 2006.
There is a lack of openness to
upward feedback - it just goes in
one ear and out the other.
When Bill and Greg [visited this
office] everything they said was
met with absolute scepticism.
“We’ve heard that before; we’ve
been told that before.”
MPW has the right skills and
expertise to manage the various risks
to which it is exposed
It’s very hard to teach brokers a planning
mindset... They don’t know what they
don’t know... You can’t teach 300 brokers
how to be advisers... You need to
fundamentally change the structure. But I
don’t think they will...
The real problem was there was
never going to be enough time to
make all these changes happen in
time. So people became disillusioned
because it seemed like the task was
impossible. It was both time and the
scale of change required.
My impression is that we aren’t in people’s
minds [in the state locations]. In Sydney
you have access to people like Peter
Maher, Bill and even people like Matt
Whitehead. You can’t get things fixed as
easily – you can’t just go downstairs...
There are too many grey areas. They'll
find something to breach you on. There's
always something, and with FoFA there
will be even more grey.
When all your time is taken up with SoAs,
reporting tools etc (which you shouldn’t be
doing) and you’ve got to talk to clients, and
you’ve got to prospect, then the result is that
you don’t dedicate enough time to it
[compliance activities]. But if we had the right
tools I’m 100% sure everyone would do it.
It’s not difficult to adhere to
Statement of Advice (SoA)
regulations
Significant disconnects
seem to exist, giving
advisers a sense their
feedback isn’t heard and
change will be difficult to
achieve
12 12 76 Advice
40 60
20 80 Adviser
Solutions
Risk Mgt
28 34 38
MPW
Australian
Advisers
2013
MPW
Canada
Advisers
2011
9 3 88
Confidence in
organisational risk
skill is extremely
low, for example,
compared to the
Canadian adviser
population
1 2
Learned helplessness prevents people from trying to initiate change
21 34 45
Agree, Strongly
agree
Neutral Strongly disagree,
Disagree
Risk Culture Survey results, % distribution Risk Culture Survey results, % distribution
Agree, Strongly
agree
Neutral Strongly disagree,
Disagree
18
Confidential & Commercially Sensitive
MGL.0001.0003.0204
Inertia – Drivers C
Key drivers
Inertia Learned helpless-
ness
Change impetus at leadership
level is weak
Low discretionary
effort
Personal/individual barriers to compliance change
Lack of buy-in to overall approach
Complacency/comfort regarding work-life balance
Current state provides an optimal balance of income-to-effort for many advisers – more time on compliance perceived as disrupting this balance
For advisers in later stages of career, impetus to put in effort to change for relatively short trade-off period is low
Lack of insight into
need for change
Internal conflict between ego and need to change
Resistance to be ‘being told what to do’
Knee-jerk reaction by advisers to perceived ‘kindergarten’ approach towards ‘enforcing’ change
Difficulty ‘letting go’ of models that have been so successful in the past
Lack of buy-in to Macquarie’s response to external pressure
View that our response is/has been overly administrative (form over function)
View that Macquarie should be challenging the regulator more
Lack of buy-in to industry changes in general
View that legislation changes will not achieve their stated aims (form over function; likely to produce undesirable results for small investors)
Belief that nothing Macquarie does will satisfy the regulator and media
View that the legislation is not clear in its requirements and too difficult to interpret accurately
Lack of accountability for change
Little perceived consequence (in the past) for failing to change
Few rewards for change
View from advisers that the reputational impact of compliance failures (even systemic ones leading to the EU) will not impact them individually, due to their strong personal relationships with clients
More direct benefit perceived from revenue-generating activities than change activities
AVP penalty only applies to small number of advisers
No encouragement/informal reward from State Managers who are often cynical about change
Reasonable likelihood that files will not be reviewed, and even if they are, few consequences exist for ‘Needs Improvement’ result
Fundamental independence mindset that inhibits willingness to conform
Lack of understanding regarding content/breadth/extent of changes
Low credibility of leaders managing Macquarie’s response to FoFA
1
2
2
Branches over page See evidence under corresponding
number on following page n Theme 19
See ‘Risk Insight Clouded’ driver tree
Confidential & Commercially Sensitive
MGL.0001.0003.0205
29 39 33
11 22 67
13 16 71
27 73
28 23 49
39
Inertia – Evidence C
Many advisers resent the compliance activities expected of them
currently (let alone increasing the expectation)
Buy-in to the risk framework is weak and the business has not
created many compelling incentives to reinforce compliance
35
65
Advisers
audited
Advisers not
audited
% Advisers that had BRP file reviews conducted
1 April - 31 Dec 2012, Nationally
Advisers know the
likelihood of being
audited is less than 50-
50, lessening the impact
of the BRP in identifying
and penalising non-
compliant advisers
The time required to complete risk management activities
exceeds the value they add
Advisers
Risk Mgt
Bus. Strat. & Perf.
Advisers
The risk policies, processes and procedures utilised by
MPW help us manage various types of risk more effectively
Adviser Solutions
Advisers are
not bought-in
to the value of
compliance
activities
1 2
Low discretionary effort expended on changing the status quo
Agree, Strongly
agree
Neutral Strongly disagree,
Disagree
My view is that the current
"issues" are every bit
about a lack of investment
in information technology
than poorly drafted
legislation
Coming to Macquarie was
an out and out shock.
Systems were shocking,
compliance was by
comparison draconian. To
treat grown men and
women as school children
is just….
[What are the
consequences?] There
wasn't any until recently. I
hadn't been audited since
my first year - I asked to
be audited..
The amount of time and effort we have
to put into risk these days is many times
that of years ago. We are still expected
to reach financial targets with a much
higher risk burden... Remuneration is
98% skewed to revenue performance
and 2% risk - that sums it up!
As people get older, change gets harder
– I see it in myself. Especially when you
have a successful model that has
worked for so long and worked well for
so long.
I hate being told what to do. I’m getting
older now and sometimes I think
“seriously mate, you’re 30 years old and
you’re telling me what to do?”
What does it take to be successful?
Independence. You need to be
independent and focus on what you’re
here to do – make money for your
clients. So clients and independence
comes first, and what is best for
Macquarie comes second.
The Head Office risk structure is...
ineffective and does not seek to improve
the system. They are the ‘police’ and
issue ‘fines’ rather than making the
systems workable... The truth is
advisers do NOT have the most basic
tools we need in order to be compliant.
Risk Culture Survey results, % distribution Risk Culture Survey results, % distribution
Agree, Strongly
agree
Neutral Strongly disagree,
Disagree
20
Confidential & Commercially Sensitive
MGL.0001.0003.0206
Risk insight clouded – Impact
Limited file reviews hamper insight into breadth of compliance
issues, and recognition of need take decisive action
Lack of understanding regarding
extent of risk exposure
Ongoing, unaddressed skill gaps exist, even
within the risk function
Impact of ‘risk insight clouded’
• Gaps in senior leader appreciation of serious risk management inadequacies
• Exposure to unacceptable levels of unmitigated risk
• Inability to respond proactively to risk issues
28 45 28
56 44 Risk
Advice
I am equipped with appropriate skills to manage all the
risks I am responsible for
Files reviewed as part of Business Review Program
1 Jan – 31 Dec, 2012
Even risk
‘experts’
feel they
don’t have
the
necessary
expertise
to fulfil
their role
MPW does not identify, share or analyse information effectively to develop insight on risks facing the business
Agree, Strongly
agree
Neutral Strongly disagree,
Disagree
When Commonwealth got their EU... the
risk managers [were asked] what would
happen if ASIC came and did a similar
investigation here. Reading the report,
senior risk people were surprised that
we didn’t think we were so bulletproof.
But why should they be surprised?
[No one listened] to about 5 years of
consistent feedback that our systems
are rubbish and do not support
consistent quality of advice being
delivered efficiently.
The goalposts and interpretation of the
‘law’ and requirements are often
blurred... There seems an unhealthy
lack of core guidance and
comprehensive understanding of all
requirements from above.
Risk Culture Survey results, % distribution
Files reviewed
in 2012 = 640
Total clients
=113,009
22
Confidential & Commercially Sensitive
MGL.0001.0003.0208
Risk insight clouded – Drivers A
Risk insight clouded
Capability gaps inhibit
ability to recognise
issues
Information flow stymied
Failure to challenge
Structural barriers to transparent information flow
Mindset barriers to transparent information flow
Siloed management
Lack of effective state management supervision
Influential State Managers that have favoured retention of a model that gives them a high level of autonomy
Separation of risk from the business decreases cross-functional transparency
MPW head office disconnected from regional offices
Low expectations regarding the need for open, detailed discussions
Large spans of control makes it difficult for State Managers to be ‘across’ everything
Perception/reality that advisers prefer a ‘low-touch’ model of management
Practical factors prevent adequate face-to-face interactions between Sydney and regional staff
Management style that favours delegation of accountability to State Manager level for many issues
Individual disincentives to transparency
Accepted process of ‘filtering’ large volumes of information as it progresses up to senior management
Consequences for non-transparency/missing information perceived as less severe than those for concrete issues
Active requests from senior leaders for more digestible forms of data resulting in summarised reporting
Reluctance to be the ‘bearer of bad news’
Active pressure not to escalate issues where possible
Leaders (both State and senior level) seen as role modelling non-transparency to achieve desired outcomes
Few metrics around State Manager performance besides high level revenue targets
Local risk staff seen as ‘gatekeepers’ and ‘policy’, thus decreasing willingness to be transparent with them
1
2
Key drivers
Branches over page See evidence under corresponding
number on following page n Theme
Retrospective, sample-based review mechanisms fail to provide timely insight
Lack of systems and automation to provide ‘real-time’ compliance transparency
23
Confidential & Commercially Sensitive
MGL.0001.0003.0209
27
26
26
17
11
45
10 10 80
56 44
22 44 33
Risk insight clouded – Evidence A
Especially within the risk function, the environment is not perceived
to encourage openness regarding risk concerns and issues
Flow of information is hampered by a dispersed and relatively ‘loose’
management model
I feel confident that I will not be penalised for raising risk
management concerns
I receive useful communications on all important issues related
to risk in MPW
Risk Mgt
Risk Mgt
1 2
Information flow stymied
Agree, Strongly
agree
Neutral Strongly disagree,
Disagree
There is a preference by
management not to look into issues
where breaches may have occurred
and could result in compensation
being payable to clients where the
business would have to fund this,
unless concrete evidence is raised.
The support of risk procedures in terms of skilled, willing staff in risk and
compliance has always been an area of concern. Risk staff are barely
visible on the floor and have low engagement with advisory staff and it’s this
low engagement that would form the biggest improvement in behaviour.
The general fear is that if risk
is approached or reported etc.
it may mean a deal cannot go
ahead and a comprehensive
answer may not be provided. A
more open and consultative
approach would be good.
Risk Culture Survey results, % distribution
48 26
36 64
State Managers/Team Leaders provide
adequate supervision and monitoring of risk
and compliance issues
The senior leaders of MPW are actively
involved in the management of risk
Adviser
Solutions
Risk Mgt
Bus. Strat.
& Perf
56 18
53 30
67 22
36 18
Advice
Risk Culture Survey results, % distribution
Agree, Strongly
agree
Neutral Strongly disagree,
Disagree
Adviser
Solutions
Risk Mgt
Bus. Strat.
& Perf
Advice
There is no clear explanation
or suggestion as to how to
integrate...obligations
practically or efficiently. Every
person has a different
interpretation of how to build
it into their daily routine. This
ultimately opens up the
window for non-compliance
and/or misinterpretation of the
compliance obligations by
staff.
The paradox of a siloed
business structure is that
people want to be left
alone, so [ironically] the
biggest advocate for us is
someone who leaves us
alone.
Being in a satellite office
of MPW we are very much
left to our own devices.
The layer of management
that is indifferent, cynical,
opposed to and completely
lacking in any positive risk
culture is the State
Manager level. The
messaging that was coming
from the top was NOT
being fed down to advisers.
Advisers were fed a
different message yet the
State Managers relayed
upwards that advisers were
on board and everything
was OK.
31 42
24
Confidential & Commercially Sensitive
MGL.0001.0003.0210
Risk insight clouded – Drivers B
Risk insight clouded
Capability gaps inhibit
ability to recognise
issues
Information flow stymied
Failure to challenge
Significant risk capability gaps in adviser population
Many incumbents in risk roles lack extensive risk
experience
Professional backgrounds of many advisers lack risk depth
Opportunity to improve effectiveness of professional development
Large broker population requires minimal risk knowledge to attain certification (e.g. compared to planners)
Even brokers with relatively lengthy experience have not been required to develop strong compliance skills
Structural barriers to demonstrating deep risk insight as an adviser
State Managers not in a position to identify risk gaps
Industry-wide tendency to achieve required number of training hours as a priority – genuine learning is a secondary aim
Use of channels and techniques (possibly due to capacity constraints) that don’t engage advisers – lack of tailored coaching, in-person, ‘war-stories’ etc
Complex nature of incoming legislation difficult for even risk professionals to interpret, let alone advisers
Tendency for advisers to specialise in certain strategies/products means breadth of risk knowledge is limited
Risk expertise and knowledge not leveraged to develop management insight into risk topics
State Managers often delegate majority of risk issues to Risk Managers and therefore do not develop expertise themselves
Breadth of models being managed within offices makes it very difficult to demonstrate risk insight across range of strategies/products
Capacity and system constraints inhibit proactive analysis by risk function to aid management in understanding risk ‘profile’ of their office
Little attempt to provide external insight around best practice to up-skill management on ‘what good looks like’
Some advisers don’t see the individual value proposition for developing their risk expertise – e.g. at later stages of their careers, or work-life goals
Management lacks in-depth risk expertise
Many State Managers from a broking background may not have deep risk skill in general, particularly for planning-oriented risks
See Ineffective Risk Function tree
Focus of adviser capabilities (qualification) is around minimum standards
Treatment of risk management effectiveness in performance management for advisers is very inconsistent and not embedded
Lack of leadership development for State Managers
Key drivers
Branches over page See evidence under corresponding
number on following page n Theme
1
2
25
Confidential & Commercially Sensitive
MGL.0001.0003.0211
25 20 56
29 52 19 27 48 25
27 35 39
Risk insight clouded – Evidence B
I regularly receive feedback on my ability to
manage risk effectively
My risk management capabilities are assessed
regularly
Advice
Advice
Our risk management professionals take a lead
role in guiding key risk decisions
Risk management professionals provide critical
input to the strategy/product development
process in MPW
Management lacks individual risk expertise, and also fails to
leverage the risk function to bolster their ability to manage risk
Many advisers are ‘unconsciously unskilled’ in risk, especially those
from a broking background 1 2
Capability gaps inhibit ability to recognise issues
Agree, Strongly
agree
Neutral Strongly disagree,
Disagree
Agree, Strongly
agree
Neutral Strongly disagree,
Disagree
It’s very hard to teach brokers a
planning mindset. They’re just about
‘give me 10k and I’ll invest it for you’.
They don’t know what they don’t know.
The heritage of the business is stockbroking,
but financial services reforms in recent years
have increasingly brought brokers’ obligations
in line with financial planners/advisers.
Brokers still largely believe this stuff does not
apply to them...when in fact the law requires
everybody to be advisers when advising retail
clients.
Advisers put the onus on their assistants to
make them compliant - but assistants don't
know anything about the regulations. I
wouldn't know what a compliant SoA looks
like. I feel wealth managers are
much more in touch with their
legal and fiduciary obligations
under the AFSL requirements
whereas the brokers tend to
be either unaware, untrained,
or not interested in meeting
compliance requirements.
Over the past few years, there has been a big push from
MPW management for advisers to ‘diversify’ their service
offering and become accredited to provide advice in other
areas outside traditional stockbroking services...This has
resulted in advisers providing advice in areas in which they
have little skill or experience and poor record keeping and
documentation of the advice processes.
When [a member of management] gave a
heads up that management were really
unhappy about the EU, he said the things
you need to be doing are watching how you
carry yourself, dress around town... [and yet]
we have no directions on what to do for
FoFA!
The risk manager isn’t involved in
recruiting at all. HR was completing the
checks on these people after they’d
already begun working for us. And now
we are still dealing with some of these
people.
Since merger of broking/planning majority of
management are brokers with little
understanding of the planning business. I
have no confidence speaking with
management.
Most State Managers are either
stockbrokers or former stockbrokers
and given where MPW currently finds
itself, I now question if these former
stockbrokers have the skill set going
forward in managing risk which has
become a much more complicated
process.
Without regular
feedback many
advisers don’t know
they have gaps in
their compliance
behaviour/skill
Risk Culture Survey results, % distribution Risk Culture Survey results, % distribution
The Risk function
may be under-
leveraged in providing
input
Advice
Advice
26
Confidential & Commercially Sensitive
MGL.0001.0003.0212
Risk insight clouded – Drivers C
Risk insight clouded
Capability gaps inhibit
ability to recognise
issues
Information flow stymied
Failure to challenge
Arguments to increase risk management effectiveness lack organisational support
Risk message often holds little weight
Perception that risk management improvement ideas will be too expensive
Those with a risk ‘agenda’ often dismissed as ‘non-commercial’
Risk activities seen as not contributing to the bottom line, and thus less important
Widely held view that Macquarie compares favourably to peers
Individuals avoid raising concerns openly
View that ‘best practice’ approaches are too expensive to implement with Macquarie’s model (e.g. enough ARAs to review all SoAs)
Perception that gap between Macquarie and other firms with ‘leading’ approaches is too large to address economically
Vocal opinions that Macquarie compares favourably to peers sway general opinion
Difficulty accessing reliable benchmarking data regarding practices at other firms
Response to raising issues not constructive
Inappropriate pressure from those in positions of influence on subordinates not to raise issues
Individualised nature of adviser culture decreases sense of personal responsibility and confidence for raising concerns regarding other advisers
‘Good news culture’ means concerns are often met with consternation, not welcome
Tendency to delegate problem solving to issue raiser dis-incentivises raising of issues
Previous attempts to request funding have been denied leading to generalised expectation that future requests will also be denied
Ineffective escalation of concerns
Challenge in open forums not seen as culturally appropriate
Fear that asking for help will result in penalty rather than help
Perception that challenges regarding favoured advisers may be simply ignored and/or penalised informally
Instances of public belittling and other consequences for raising issues
Perception that bulk of compliance activities are, practically speaking, optional
Influence of leadership and management messaging in adviser perceptions (e.g. “The EU is mostly about systems”)
1
2
Key drivers
Branches over page See evidence under corresponding
number on following page n Theme 27
Confidential & Commercially Sensitive
MGL.0001.0003.0213
26 40 34
Risk insight clouded – Evidence C
I found MPW's risk framework far more
comprehensive then competitors - and
this was before the EU. I was surprised
MQG got targeted for this.
60% of people
interviewed
selected “Easily
yielding to
inappropriate
pressure from
others” as ‘more
like’ MPW
People in MPW are expected to do what they are
told, no matter what
People in MPW challenge others constructively if
they think that they are not doing the right thing
[There has been a] lack of investment by
the Business into staffing resources and
integrated surveillance systems.
The only real problem MPW has in terms
of risk management [is] IT systems.
Many
advisers
and
managers
are ‘blind’
to any
problems in
the risk
function
(besides IT
systems)... I believe the risk mindsets are on the
whole good at Macquarie...when
compared to other firms I have worked
at... The issue for me is the systems.
Systems are rubbish... lack of investment
is biggest ongoing obstacle to advisers
being able to meet all performance goals
set by management, including both
revenue and risk management.
..which
reduces
the
impetus to
invest in
the risk
function in
general
Discussion of risk issues is stymied in a culture that does not manage challenge
productively, on all fronts (advisers, management and risk) 1 Concerns regarding under-investment in the risk
function have been met with resistance 2
Failure to challenge
We have [risk] resources now with
[name], but you should ask [name] why
they left. They felt management didn’t
believe there was any value in their role. I
thought they were a real asset to the
group...The State Manager said it straight
to them, “I don’t believe in the value of
your role.”
25 40 35
Desirable Developing Detrimental
29 36 35
Agree, Strongly
agree
Neutral Strongly disagree,
Disagree
Raising issues of compliance some years
ago in relation to our handling of IPOs
with State Manager just got me labelled
as a whinger. And told that this is they
way we are doing it.
Ever since the GFC, MPW has been
doing everything to indiscriminately chase
the dollar. When staff have raised risk
concerns, management have ignored
them and when the risk team has tried to
ensure the business meets the
regulations they have been treated with
derision.
All risk management decisions are made,
managed and reported [in line with
management maintaining the status quo].
Anyone who holds management to
account is bullied and/or de-resourced.
If you do not get along with your risk
manager you tend to be crucified for any
mistakes and held up as their example
that they are doing their job.
There have been a number of incidents
raised in past times where the Business
has challenged Risk and adviser penalties
have not been imposed or enforced
because of ‘associations’ with Business
Leaders.
Risk Culture Survey results, % distribution
% of behaviours selected as representative of
MPW across all interviews
Behaviours relating to “Challenge”
Risk behaviour interview analysis
28
Confidential & Commercially Sensitive
MGL.0001.0003.0214
35 38 26
Freedom without boundaries – Impact
‘Freedom’ and individualism are core values, creating difficulties such as executing a cohesive and effective risk governance model
‘400 individual businesses’ are very difficult to
support with efficient and effective risk
systems and processes
Emphasis on individualism makes it difficult to
align behaviour around shared goals, e.g. risk
The environment of ‘freedom’ includes a lack of
explicit focus on who is accountable for risk
400 models... It sounds
great in theory, but it’s
impossible in practice.
We get different
messages as to what we
are required to do, either
from different people or at
different times. What we
are asked to do now is
different to 6 months ago.
We’ve always had freedom within boundaries, which I
describe as freedom without boundaries.
Advisers aren't aware of their obligations - they don't
know how to give compliant advice and are given no
training on how to do this.
People in MPW seek to resolve problems even when they
are outside their area of responsibility
Embedded
Range of mechanisms to drive
personal responsibility
Evidenced
Mechanisms focus on driving
performance responsibility for
formal accountabilities
Not Evidenced
Few mechanisms to
communicate or support
ownership of risk
Impact of ‘freedom without boundaries’
• Principle that ‘the client is the adviser’ undermines MPW ability to establish and maintain minimum standards
regarding compliance and quality of advice
• Difficulty providing appropriate and standardised tools and processes to facilitate effective and efficient compliance
outcomes
• Challenging to align, influence and hold people accountable for shared organisational goals – e.g., management of
reputational risk
• Inability to capture benefits of a more team-based environment including peer review, coaching and tailored training
In this business it's very
individualistic, there's
nothing in it for people to
help each other.
Broking is a very selfish
industry – unless a broker
will make money for
himself he won’t pick up
the phone.
People are individuals
and have completely
different values.
The advantage of this
model is that we can
meet client needs, the
downside is that [it] is so
difficult to monitor.
You've got 300 people.
There is going to be natural
variation. You've got so
many business models.
Agree, Strongly
agree
Neutral Strongly disagree,
Disagree
Risk Culture Survey results, % distribution
• No specific
mention of risk
competencies in
job descriptions
• Few
mechanisms to
allow risk
reporting
outside direct
area of
responsibility
• Little formal
communication
of risk
ownership
30
Confidential & Commercially Sensitive
MGL.0001.0003.0216
Freedom without boundaries – Drivers A
Freedom without
boundaries
Organisational barriers to boundary-
setting
Leadership barriers to boundary-setting
Leadership role design encourages
‘hands-off’ discretionary approach to management
Large spans of control make it hard for State Managers to be ‘hands-on’
Few explicit boundaries set (legal
boundaries implicit)
Little acceptance
of boundaries that are set
Risk function lacks effectiveness in
reinforcing and setting boundaries
Organisational power imbalance makes it difficult for the risk function to effectively influence management
Risk function is under-resourced compared to the past, making it difficult for risk professionals to undertake a more strategic role in governance
Risk function is undermined by leaders making discretionary concessions around penalties
Lack of agreement between leaders on where boundaries
should be set
State Managers running own client books undermine perceived independence of ‘manager role’
Tension between business and risk teams around who owns risk
State Managers sometimes question the value of a perceived ‘compliance overhead’ and fail to support the messages being passed down by risk teams
View that boundaries must be ‘loose’ in a business with ‘400
models’
Business breadth is seen as key to Macquarie’s market position and brand
Business models that generate good revenue are accommodated, even if their fit with the business’ risk tolerance and strategy is questionable
Accommodating all business models is used as part of the value proposition to attract and recruit advisers
View that ‘the boundaries are the law’ contributes to the view that it is appropriate to accommodate diverse business models so long as they are legal
Leadership not inclined to set
boundaries
Fear that advisers will leave (or not join) if models are not accommodated
Leadership focused on short-term goals which are more easily realised through ‘loose’ management
Lack of a clear vision and strategy to help define boundaries means the direction provided by managers is sometimes discretionary
Some managers personally cynical towards risk management boundaries, implicitly advocating circumvention when possible
Risk staff do not fully understand all the businesses that they monitor, which limits their ability to set meaningful boundaries
Risk function does not consistently have the presence and influence required to be effective influencers
Reputational and client risk boundaries not set due to view of ‘advisers as clients’
1
2
Key drivers
Branches over page See evidence under corresponding
number on following page n Theme 31
Confidential & Commercially Sensitive
MGL.0001.0003.0217
21 52 26
Boundaries are undermined because they are difficult to set in a
multi-model environment, and Risk is a toothless tiger in
reinforcing them
% of behaviours selected as representative of
MPW across all interviews
Behaviours relating to “Communications”
Freedom without boundaries – Evidence A
…no one in leadership
can tell you what model
we should be in 5 years.
Accountability is lacking at
leadership levels. For
leadership it’s easier that
way.
Culture starts at the top
and leadership is very
short sighted about the
messages they send out.
Embedded
Range of organisational
mechanisms to facilitate visible
involvement and role modelling
of senior leaders in risk issues
Evidenced
Senior leaders
required to participate
in some risk issues
Not Evidenced
Little systematic involvement
of senior leaders in risk-related
activities and/or
communications
22 33 45
Senior Leadership Organisation Mechanisms
Leaders are not focused on boundary setting for a range of
reasons 1 2
Although there are some risk KPIs, and risk features as a standing item in selected
leadership forums (e.g. Advice EMC), many formal mechanisms are missing, e.g.:
• Job descriptions explicitly calling out risk accountabilities
• Formalised two-way cascading communication opportunities
• Visible senior leadership involvement in risk activities is missing
Few explicit boundaries set (legal boundaries implicit)
38% of people selected
“Misaligned messages
communicated by
leaders at different
levels of the
organisation” as ‘more
like’ MPW
Commerciality and flexibility to
accommodate a number of different
business and adviser models. This is
both a strength and a weakness.
I think we go out to hire 'big
writers' regardless of their history.
If they write good revenue, we let
them in on our licence.
It's always been our selling point…if
you have a business model we can
accommodate it.
When advisers come to
Macquarie the message is we will
modify to fit their business model
- not "here is the Macquarie
business model“. 400 models...”the clarity is the law”.
The boundaries people are expected
to operate under is the letter of the
law.
State Managers/Team Leaders in MPW tend to
be cynical about risk policies, processes and
procedures
26% of people believe their
State Manager is cynical
about risk policies,
procedures and processes,
which may undermine the
risk function’s effectiveness
Desirable Developing Detrimental
Agree, Strongly
agree
Neutral Strongly disagree,
Disagree
Risk behaviour interview analysis
400 advisers with 400 different
models – do they [RMG] really
understand the risk they’re taking
on at an aggregated level?
How can you run 400 businesses and
manage them? How can you even
audit it when there are 400 different
ways of obtaining information?
Risk Culture Survey results, % distribution
32
Confidential & Commercially Sensitive
MGL.0001.0003.0218
Freedom without
boundaries
Lack of personal ownership regarding
compliance obligations
Low affinity with Macquarie
Tension in the Adviser Value
Proposition
Some advisers do not feel they receive sufficient support for the proportion of revenue they share with Macquarie
Feeling that Macquarie takes all the upside and none of the downside with regards to risk and revenue generated
Few explicit boundaries set (legal
boundaries implicit)
Little acceptance
of boundaries that are set
View of risk and compliance as a task
rather than an outcome
Acceptance of advisers using their assistants and other junior resources to complete compliance activities, rather than take personal responsibility
Adviser culture of individualism and
entitlement
Precedent of exceptions in consequence management
Advisers highly value independence, with Macquarie regarded as a ‘third party’
Adviser belief that ‘my model is different to everyone else’s,’ providing an excuse to play by their own rules
Preferential treatment of advisers to retain loyalty, especially for large writers
Many individual cultures
Past recruitment focused on ‘bums on seats’ rather than cultural alignment
Legacy of acquisitions with few attempts to instil MPW culture
Geographic spread and size of business creates sub-cultures where primary affinity is to the local office
Little support for collaboration
Incentive model discourages partnering, referrals and teamwork
No formalised coaching or mentoring arrangements to facilitate collaboration and knowledge sharing
Reluctance to partner due to different levels of capabilities amongst advisers and close guarding of client relationships
Lack of understanding
regarding obligations
Knowledge and skill gaps around risk obligations specific to the retail advice industry
View that breaches may be ‘negotiated’ undermines clear accountability
History of ‘popular’ risk professionals assisting with compliance completion, rather than pushing responsibility back to advisers
Risk function focus on efficiency of compliance activities rather than monitoring around compliance quality has reinforced a ‘tick-a-box’ mindset
Legislation is very ‘grey’ on expectations making it difficult for advisers to understand what they will be held accountable for
Poor reinforcement of desirable risk
behaviour Perceptions of ineffective
consequence management
Inconsistent application of breach policy
BRP interrogates a small proportion of files and focuses on discovered issues, with no systematic review of other files for the same adviser or for recurring issues
Lack of standard recruitment and induction process to establish and reinforce minimum standards and expectations
1
2
1
Freedom without boundaries – Drivers B
Key drivers
Branches over page See evidence under corresponding
number on following page n Theme 33
Confidential & Commercially Sensitive
MGL.0001.0003.0219
24 22 54
Freedom without boundaries – Evidence B
My ability to operate relatively independently as an
‘entrepreneur’ under Macquarie’s brand is critical to my
job satisfaction
Risk management activities tend to limit, rather than
promote, business growth
Behaviours relating to “Personal
Responsibility”
13 51 36
The understanding and individual ‘value proposition’ required to
foster personal responsibility for risk and compliance is weak
A shared culture of independence means advisers do not feel
obliged to ‘play by Macquarie’s rules’ 1 2
15 11 74
27 29 44
25 47 28
Little acceptance of boundaries that are set
It doesn’t matter if you’re
known for breaching, all
that matters is your
revenue. The higher
revenue writers are
protected.
If there is no incentive to drive positive behaviours, it is
just the same as giving incentives for bad behaviour -
you won’t correct it by threatening people.
Behaviours relating to
“Incentives and Consequences”
29 36 35
Advice
Other
Advice
Other
Agree, Strongly
agree
Neutral Strongly disagree,
Disagree
Desirable Developing Detrimental
74% of advisers see
operating as an
entrepreneur as critical to
their job satisfaction,
compared to 44% for
other functions
54% of advisers see risk
management as limiting
business growth,
compared to 28% for
other functions
% of behaviours selected as representative of
MPW across all interviews
Risk behaviour interview analysis
Compliance risk is
pushed to advisers by
Macquarie - then the
adviser pushes it to
their assistant.
A lot of advisers don’t
think that they own
risk; they don’t think
about owning risk.
Everyone likes the big pay
cheques, the big expense
accounts, the big titles.
But when it comes down
to it they've all got
responsibility, but they've
shirked them all. There is a lack of
accountability…when things
go wrong it is [seen as] the
fault of Compliance
because Compliance didn’t
pick it up.
Macquarie offers a franchise
to advisers. But that doesn’t
come with any brand
management. The clients are
seen as owned by the
advisers, not owned by the
advisers and Macquarie.
Macquarie is often described
as a third-party: “they haven't
done this", "their systems
don't work"... rather than
work together because they
have the client relationship
and bring in the money.
Risk Culture Survey results, % distribution
33% of people interviewed selected
“Ignoring risk issues outside own
area of responsibility” as ‘more like’
MPW
• 48% of people interviewed
selected “Lack of consistent
consequences for behaviour that
is clearly misaligned with risk
principles” as ‘more like’ MPW
• 31% selected “Excessive risk
taking rewarded”
34
There tends to be a ‘hands-
off’ approach. People don’t
want to touch things
because there’s a culture of
“if you touch it you own it”
Confidential & Commercially Sensitive
MGL.0001.0003.0220
22 30 48
23 34 44
Short-term focus – Impact
Revenue focus has fed a ‘quantity over
quality’ approach to recruiting
Leadership focus on short-term financial results
provides implicit approval to de-prioritise risk if
necessary
Impact of ‘short term focus’
• A one dimensional driver of revenue among advisers, in some cases resulting in decisions that
compromise integrity, client's interests and Macquarie’s reputation
• Tight cost management and lack of investments in systems and people
• Multiple ‘band-aid’ solutions that, over time, have simultaneously decreased effectiveness and
increased the cost of compliance relative to peers*
• Lack of selectivity on recruitment and acceptance of advisers with questionable reputations
25 35 41
Senior Macquarie leaders demand results - it doesn't matter
how the organisation gets them
The financial rewards in MPW encourage people to manage
risk effectively
MPW will not recruit someone who has an attitude
to risk that is fundamentally different to that of
Macquarie & MPW
Overwhelming emphasis on short term performance over longer-term, sustainable business performance and reputational standing
Over-emphasis on revenue gives top generators
power and a degree of immunity from the rules
It’s very sales oriented –
you can do pretty much
anything you want.
Make the sale and we’ll
work out how to
execute/do the job
afterwards. Macquarie
doesn’t always dot the
i’s and cross the t’s.
It’s the world Macquarie
has created – status at
MPW is based on
revenue only. It doesn’t
matter if you’re known
for breaching, all that
matters is your revenue.
Advisers hitting the
perfect 50%,
threatening to leave if
they don’t get the AVP
bonus and then getting
paid it.
We’ve recruited people
who’ve never done
SoAs… they don’t go
through that screening.
The mentality is that
advisers are the client –
they hold the power.
That’s not to say we put
up with people that are
fundamentally bad, [you
might] tolerate things
from high writers that
you wouldn’t necessarily
tolerate from others.
30% of MPW
believe leaders
don’t care how
they get results
Only 35% think
rewards
encourage
effective risk
management
Only 44% think
MPW wouldn’t
recruit people
with misaligned
risk attitudes
Agree, Strongly
agree
Neutral Strongly disagree,
Disagree
Risk Culture Survey results, % distribution Risk Culture Survey results, % distribution
Agree, Strongly
agree
Neutral Strongly disagree,
Disagree
I hear mutterings from
other advisers, “Why did
we recruit those
people?”
36
Confidential & Commercially Sensitive
MGL.0001.0003.0222
Short-term focus – Driver A
Short-term focus
Adviser mindset
Leadership behaviour
Macquarie culture
Perception that senior leadership focus is overwhelmingly weighted towards revenue generation and cost reduction
Perception that management are almost entirely focused on revenue generation
Content of messages reinforce revenue focus
Actions prioritise revenue over other goals
Ratio of risk to revenue messages heavily weighted towards revenue as a focus (at the expense of client/risk)
In the absence of a strong risk culture, senior leaders emphasis on BHAG (e.g. starting and ending presentations with it) seen as indicative of over-riding emphasis
Actions to prioritise cost reduction over other goals
Perceived preferential treatment of top-revenue generators
Leadership behaviours perceived as ‘protecting’ revenue generators (e.g. overlooking compliance shortcomings)
Perception of tolerance of some business models that may stretch risk appetite, but generate revenue (e.g. options)
Leadership perceived to be maintaining a low cost structure with a perceived disregard for the risk implications of cost reduction
Management actions that highlight emphasis on revenue
Perceived kudos and power of top revenue generators driven by fear of them leaving
View of a “don’t ask, don’t find” approach to big writers (i.e. not ‘hassling’ them about compliance issues)
Actively arguing on behalf of large revenue generators to avoid penalties for non-compliance
Distribution of books to big writers as a form of informal reward
Published daily rankings of revenue generation in isolation of other metrics
Lack of long-term vision, strategy or goals focused on alternative drivers (e.g. client interest)
State Managers seen as caretakers rather than leaders driving strategy for their office
Belief that leaders opt for the low cost, ‘band aid solution’ to issues rather than resolving the root cause
Historical decisions prioritise revenue over other drivers
Historical ‘bums on seats’ hiring strategy seen as revenue-over-quality focus
Decisions to de-prioritise investment (e.g. in systems) seen as over-emphasis on ‘short-term over sustainable profitability
Leadership remuneration and profit share tied to profitability
Leadership perception that competitors pay more for good risk talent than Macquarie MPW
1
2
Key drivers
Branches over page See evidence under corresponding
number on following page n Theme 37
Confidential & Commercially Sensitive
MGL.0001.0003.0223
34 43 24
30
Short-term focus – Evidence A
Senior leadership words and actions create an overwhelming focus
on financial goals regardless of the trade-offs or implications
Management (state and head office) reinforce revenue focus via
decisions and actions – e.g. preferential treatment of top writers
The main focus was BHAG, instead of,
“are we delivering a quality product?”
Especially in 2006/7 it was all about
profit share instead of putting dollars
into systems. There’s not so much cash
going around now but it’s still revenue,
revenue, revenue, instead of thinking
about quality. There is not a focus on
client and giving them a quality product.
The BHAG is all about revenue...so
everything is all about revenue…
assistants aren’t valued because they
don’t write revenue; Risk is the same.
I tried to see Peter about that bad debt.
In the end I let it go. Big writers go to
Peter. [Name] does – he can have what
he wants, he’s the biggest writer
It's revenue at all costs …MPW has
placed an emphasis on “you are a good
employee based on how much money
you make.” There's no productivity
measure except revenue.
In the past, bigger business advisers
tend to get supported and can get away
with things.
The higher revenue writers are
protected. It flows down though
management. What the adviser makes
flows up to the state management, what
the states make flows up to business
head, what the business head makes
flows up to Peter. They are incentivised to keep costs
down and maximise profit. The flipside
is that client culture, staff culture...they
are all about short-term, maintaining and
progressing their own positions.
People are too scared to change the
model because it affects their pocket...
It’s all about short-term profitability, even
though this focus on short-term
profitability means we now have an EU
which is costing an enormous amounts.
No-one asks proactively “where are the
issues that may trip us up in the future?”
Always reactive due to cost pressures.
Profitability is priority #1. What
Macquarie is missing is alignment of
leadership around what the goals and
values are. The lesson may be filtering
down that it is revenue first.
There’s a daily email that ranks you
against other advisers in Australia
[Daily Commission Rankings].
The only measuring stick is revenue,
which Is fine, but there is no measure of
what is good/bad revenue.
Cost - cutting had an impact on the
capability of the Risk team.
The senior leaders of MPW role model the
right risk behaviours
1
Management didn’t want to know about
it [systems issues]. They’re driven by
profits. They have their noses in the
trough. They’re on salary and bonus.
Leadership behaviour
2
Agree, Strongly
agree
Neutral Strongly disagree,
Disagree
Risk Culture Survey results, % distribution
There has been a lack of spend
culture...Bonuses that top execs earn
are tied to profitability – so they are
encouraged not to spend.
Only 43%
agree that
the senior
leaders role
model the
right risk
behaviours
“Behaviours Relating to
Incentives and Consequences”
29 36 35
Desirable Developing Detrimental
% of behaviours selected as representative of
MPW across all interviews
Risk behaviour interview analysis
• Only 41% of people interviewed about
this indicator selected “Definitive, prompt
consequences for behaviour that clearly
contradicts risk principles, that is shared
to heighten awareness within the
organisation”
30 47 24
State Managers/Team Leaders in MPW role model
the right risk behaviours
Agree, Strongly
agree
Neutral Strongly disagree,
Disagree
Only 47%
agree that
the State
Managers/
Team
Leaders role
model the
right risk
behaviours
Risk Culture Survey results, % distribution
38
Confidential & Commercially Sensitive
MGL.0001.0003.0224
Short-term focus – Drivers B
Overall culture influenced by high number of ‘broker personalities’
Formal incentives and consequences model focused on revenue
Nature of people working as brokers
Specific advisers attracted to and recruited by Macquarie
‘Type A’ personalities
MPW’s broker-centric heritage
Revenue related pay is the primary tool to drive performance and shape behaviour
Macquarie’s ‘Millionaires’ Factory’ reputation attracts advisers that are highly money-motivated
Macquarie value proposition to advisers that all business models are accommodated, as long as they generate revenue
Wealth Management culture seen as ‘dwarfed’ by FSB in integration
No meaningful, consistently applied consequences to act as deterrents
Standard commission model puts revenue generation at the centre of adviser performance
Strong incentives to achieve revenue hurdles (e.g. pay thresholds, AVP, non-financial rewards)
Low base compensation means almost entire pay is reliant on revenue generation efforts
Ability to influence consequences on basis of revenue leverage
Relatively narrow professional scope (focused on generating revenue – as opposed to planners focused on client understanding, compliance etc)
In most cases breaches do not carry financial consequences
Informal environment reveres high revenue generators
Ongoing broker culture influenced by State Managers who are former/current brokers
Incentive model does not encourage collaboration or teaming
Macquarie brand attracts ‘high achievers’ with competitive nature
Competitive nature of adviser pool, focused on revenue
Management mindset that “advisers are our clients” – especially high writers
Historical strategy that places advisers at the centre of all revenue generation success
Little source of shared identity or purpose as an alternative to individualistic focus on revenue maximisation
Large books make advisers attractive in the market, and thus a retention risk, giving them internal leverage
Performance of advisers overwhelmingly measured against revenue KPIs, with little other basis for evaluating their contribution to the firm
Sign on bonus and corresponding revenue target reinforces a revenue focus
Short-term focus
Adviser mindset
Leadership behaviour
Macquarie culture
Lack of performance appraisal among advisers, preventing focus on ‘beneficial behaviours’ (e.g. client management, negotiation)
1
2
3
Key drivers
Branches over page See evidence under corresponding
number on following page n Theme 39
Confidential & Commercially Sensitive
MGL.0001.0003.0225
31 38 31
Short-term focus – Evidence B
MPW’s culture is fundamentally a ‘broker’ culture
Competitive environment where high revenue generators are
revered and treated as ‘clients’ themselves
Revenue-based incentives place almost sole emphasis on
financial targets at expense of other outcomes
This is a broking business - they are
across industry the Type A of brokers…
Brokers are Kings… The firm has to keep
brokers happy.
They have an old traditional broker
mindset - these are my options strategies -
you [client] are either in or out. They
couldn't care less what the money means
to the client - they don't know if it’s just
play money or if it’s their life savings. They
treat them exactly the same.
Advisers are the client… There is
acknowledgment that the advisers own
the clients. Inherently this is very difficult
to control.
The risk Macquarie is running at the
moment is that they’ll lose their advisers
and they’ll also lose all the clients.
Too much reward is based on revenue.
All incentives are for revenue milestones
(e.g. 0.5m - a bottle of wine, $1m - a
dinner, $2m - a hotel etc). Rewards are
always for the top business writers – it’s
hard to see a reward for compliant
people. Its always the top writers who
are recognised.
We need to be equitable in a team - big
business writers don't want to work with
smaller writers. The approach only
works when business writers are equal
[i.e. revenue generated].
We don't refer clients very well - e.g. a
broker referring a client to a planner or
to a futures adviser. Remuneration does
not encourage referrals.
…It comes down to the consequences
for misbehaviour in the context of
principles. If you are putting profitability
right under clients [as a value], the
imperative is “how can I get enough
revenue to get to the 51% threshold?” The broader MPW business culture is
short-term focused with no incentive to
invest in the future. Broking is about short-
term revenue.
Its hard to live on $60k (the base salary
if commission thresholds aren't met).
22 27 52
People in MPW are penalised if they take unacceptable
risks, even if their actions generate positive results'
People in MPW are disciplined if they do not adhere to
risk management policies, processes and procedures
Brokers
61%
Financial
Planners
11%
Assistants/
Associates
22%
State Managers
1%
Other
5%
1
2
3
MPW Advice Headcount Breakdown
There is a big planner - broker divide. Planners are compliant - they come from a
different culture. With FoFA, everyone is put under the same Financial Adviser, holistic
advice umbrella… have to know about tax, super, insurance and their client, and have all
of the bases covered to give the best advice. If you're a broker, you're used to just doing
equities...You don't have time to get to know your client. It should be up to the planner.
Broking is 110% revenue driven.
Without revenue you’ve got no risk
management, compliance...
Adviser mindset
His comment was “your nearest
competitor is the guy next to you.” This
seems to be fairly accurate.
Agree, Strongly
agree
Neutral Strongly disagree,
Disagree
Risk Culture Survey results, % distribution
Only one third of
MPW believe that
people are punished
for unacceptable risk
taking ; half see
discipline for failure to
adhere to risk policies
Revenue is obtained at the expense of
compliance or what's right for the client.
E.g. One adviser put through a huge
amount of trades on the last day of the
financial year...he was trading them for the
commissions, not in the best interest of the
client.
40
Confidential & Commercially Sensitive
MGL.0001.0003.0226
Short-term focus – Drivers C
Macquarie's culture influenced by broader banking culture
Industry culture heavily focused on financial rewards
Industry under pressure since the GFC
Industry emphasis on achieving short-term profit targets to satisfy shareholders and management
Increased competitiveness in a compressed industry heightens need to focus carefully on sources of revenue
Increased pressure to generate profit in an industry where scrutiny is high
Individuals attracted to banking and finance due to personal interest in financial rewards
Macquarie-specific focus on profitability
Perception that up to the most senior level, leaders are incentivised according to Group (BFS)-wide profit vs other Macquarie-wide goals
Revenue is the primary source of shared purpose in the absence of a strong shared vision
Policies and targets reinforce revenue and profit focus
Policies exist that inherently place Macquarie’s profit above possible client interests (e.g. IPO distribution process)
Long-term Macquarie-wide vision is not well-articulated beyond “making money”
In a highly diverse business, profitability is a common denominator
Leadership at senior levels role model intense focus on profitability as a core value
Intense emphasis on profit maximisation as the goal for all parties in banking (clients as well as firms and individuals)
Short-term focus
Adviser mindset
Leadership behaviour
Macquarie culture
1
2
Key drivers
Founding principle of freedom within boundaries has driven entrepreneurial and individualistic behaviour
Branches over page See evidence under corresponding
number on following page n Theme 41
Confidential & Commercially Sensitive
MGL.0001.0003.0227
Short-term focus – Evidence C
Broking houses in general are all the
same – I’ve been at 4 big ones. It’s
because of the industry – commission
driven, write business, eat what you kill,
40-50c in the $. The bank says that
what you do with your 50c is your
problem but don’t start asking us about
our 50c!
MPW operates within a broader banking environment that
encourages a focus on short-term profits
Macquarie’s culture puts a particularly strong emphasis on
financial goals 1 2
The business hasn’t invested during the
good years….when we were making
hay, we didn’t put it in the shed –
instead we went and bought a Maserati.
And Macquarie is no different – broking
has always been like that.
Macquarie's strength is its brand - you
know there are 13,000 egos coming into
work everyday and we all have potential.
Last 5 years the firm has changed. The
industry has changed as well – the
business is more driven by banking
culture. Banks in general are always
driven by this 6-12 month profit, bottom
line, return on equity mindset. The
broking/ financial planning industry
fluctuates in terms of its income and this
doesn’t fit very well with banking’s 6-12
month targets. From a business point of
view, I can see why they have these
targets...but I’m there to represent my
client [not the bank’s profits].
Advisers will wait and see if they can get a
better deal elsewhere [post-FoFA
remuneration]. We currently pay 43% in
commissions - this is competitive in
Australia. It will be tougher for them to
make money after 1 July. Old school brokers in the good old days
it was all about lunch and mates. Now
it’s tougher – you’ve got to be more
educated. I wouldn’t want my kids doing
it.
When there’s an IPO or a capital raising, as advisers we’re expected to put our hands up
and take, say, $1m of that. Then I have to talk to clients about it before there’s a
prospectus available. But if the client turns around and says they’re not interested after all,
then I’m left holding it. That’s the ultimate breach of client trust…if the stock opens at a
profit, Macquarie takes the win, but if it opens at a loss, the adviser wears it...We are
pressured to put up our hand to take some because if we don’t it might prejudice our
participation in the next float...also my clients won’t get access to what could be a good
opportunity. This is a formal process at Macquarie, and it’s inherently conflict-driven.
Generally the more business you write, the higher you are in the pecking order for these.
Macquarie culture
Payment of advisers – they eat what they
kill – it’s 100% commission based, and
fundamental to the way the business is
run.
There is definitely a view from advisers on
that. I would probably not disagree. It’s not
a Macquarie thing; it’s driven by
legislation… The overwhelming feedback
from advisers was do ASIC ever look at
retail clients who take on stock then dump
it on the market 2 days later? [implication
being why should these guys need all this
process and paperwork?] In their minds
it’s very clear that whilst ASIC intent might
be right, their action is like booking a guy
for jaywalking when you can see a bank
robbery going on down the street. It’s not
for us to solve it; it’s for the industry to
solve.
I have no doubt that if ASIC went to
absolutely any firm they’d find the same
issues... some of my friends in the
industry are gobsmacked by what we
have to do. This EU could have
happened to anyone.
The highest revenue generator was made
Executive Director.
Above and beyond(eg closing
transactions)
Special assistance(product dev)
Business Referral
Multiple businessreferral
Team award
Macquarie Awards by Category
2009 (last year when category was published)
100% = 275
• Most utilised
categories focus
on revenue
generation
• No categories
explicitly reward
outstanding risk
management
• A closely related
category of
“Integrity”
received no
awards during
this period
42
The GFC has changed lots of things.
Post GFC it’s all been revenue focused.
Confidential & Commercially Sensitive
MGL.0001.0003.0228
24
47 25 28
54 22
Sidelined risk function – Impact
Inadequate resourcing has hampered completion of file
reviews (a key detective control for regulatory compliance)
Potential regulatory breaches allowed
to occur while riskier areas are ignored
Business outcomes ultimately hampered by risk
processes that are not seen as adding value
The risk function has been ineffective at strengthening a culture in MPW that values and instils good risk and compliance practice
Melbourne position
remains vacant
Risk management activities tend to limit,
rather than promote, business growth
Impact of ‘sidelined risk function’
• Ineffective management of issues, allowing them to reoccur
• A dogmatic approach to risk management that fails to respond appropriately to changes and needs of the business
• Emphasis on monitoring rather than analysis and insight meaning that material risks may not be identified
Advice
Other
Adl.
Bris.
Mel.
Per.
Syd.
Jun
11 Dec
11
Jun
12
Dec
12
Mar
13
No
advisers
Audited
In 2012
53
66
71
36
149
59%
49%
59%
9%
14%
ARA position filled
ARA position vacant
Ave = 26%
for locations
with gaps in
ARA
resource
Ave = 53%
for locations
with ARA
continuity
54% of advisers believe
that risk activities limit
growth
The compliance culture here is one of no
pre-vetting. I looked over one SoA and it
looked like a clever double gearing
strategy. I asked a compliance guy to look
over it and he said no. I said “but if I send it
out will you breach me?” He said yes.
The real risks are completely ignored until
it’s too late – they concentrate on legislation
issues... the real risk is inappropriate trading
or underestimating risk.
Agree, Strongly
agree
Neutral Strongly disagree,
Disagree
Risk Culture Survey results, % distribution
I'm not sure if anyone in risk has a good
grasp of how to measure risk - looking at
roles and testing them. There is not
enough thought given to the best way to
find the risk in the business – it’s more
“let’s have a process”
44
Confidential & Commercially Sensitive
MGL.0001.0003.0230
Sidelined risk function – Drivers A
Sidelined risk function
Inability to influence
Disincentive to drive genuine impact
Risk function undermines its own effectiveness
Risk function is under-resourced and risk audit roles are allowed to remain vacant for many months
Time required to provide coaching or sufficiently tailored training, and drive genuine engagement, exceeds capacity
Capacity constraints limit efficiency
Lack of buy-in from the business
Perception of ‘form over function’
Lack of proactive capability building based on cross-office analysis on risk skills and knowledge
Perception that the risk function seeks to punish rather than up-skill, i.e. ‘police officers’ instead of coaches
Message to advisers is that “this is the law” rather than explaining how it supports their business or protects client interests
Perception that monitoring is focused on completion of documentation rather than content (e.g. SoAs)
Individual capability gaps drive an unsophisticated approach
Risk staff do not fully understand the businesses that they monitor meaning that they focus on routine compliance activities rather than analysis to drive insight
Complex and challenging environment with many business models make it difficult for individuals to have sufficiently broad knowledge
Lack of experience inhibits understanding of best practice
Inability to convey seriousness of risk issues
Filtering of messages means that issues are not always escalated appropriately or communicated upwards with clarity
Risk leadership and local teams struggle to tell a compelling story about risk concerns to enlist the business
Focus on discrete incidents fails to identify underlying, recurring or thematic issues
Risk team is excluded from business decision-making or is brought in at a late stage
Perception that state leaders and senior management do not value the risk function
Leadership failure to support risk function
Low credibility with advisers and senior management
Risk staff are generally much more junior than the people they seek to influence
Local risk teams capitulate to state managers, which undermines their credibility
Perception that the risk function (at different levels) gives confusing and inconsistent messages, and avoids giving a definitive opinion
Risk as seen as an inhibitor rather than an enabler
Systems weaknesses hamper effectiveness by requiring more time to be spent on routine compliance checks and inhibiting transparency
Risk systems and processes do not support risk function effectiveness
Advisers believe that there are more effective risk processes that could be developed (e.g. as used at other firms)
Risk processes that are not always welcomed by clients lack buy-in from advisers and thus lack optimal effectiveness
1
2
Key drivers
Branches over page See evidence under corresponding
number on following page n Theme
Unclear accountability at senior level for driving effectiveness of risk team
Lack of support, direction and oversight from central risk
Lack of proactive effort from central risk to address long standing concerns raised in the business
45
Confidential & Commercially Sensitive
MGL.0001.0003.0231
31 34
27 40 33
34
10 50 40
70 30
26 33 41
Sidelined risk function – Evidence A
Risk team undermines its own credibility by not exhibiting the
skills, capacity and systems needed to manage risk effectively
The risk team struggles to have impact because the business is not
bought in to the function’s ‘value’ 1 2
Inability to influence
Risk
All
MPW has the right skills and expertise to manage the
various risks to which it is exposed
My risk management capabilities are assessed
regularly
Risk
People in MPW prioritise risk
management and reporting
All
ED & DD level
Agree, Strongly
agree
Neutral Strongly disagree,
Disagree
...and there is
insufficient ongoing
assessment to up-skill
the risk team
Neither the business
nor the risk function
itself thinks that MPW
has the necessary risk
skills.. Desirable Developing Detrimental
21 41 38
Particularly at senior
levels, risk
management is not
valued as a priority
You need the warning signs. The
warning signs have just been watered
down the whole way to the point that it
gets to the board and it's all green.
Coming to Macquarie was an out and
out shock. Systems were shocking,
compliance was by comparison
draconian. To treat grown men and
women as school children is just…
One guy from RMG was sitting there
talking to me about corporate super. A
statement he made [missed this point]
means he doesn't understand it. The fact
that you are a compliance person and
said that shows you don't even
understand it.
As a whole, the MPW risk team do not
make the average of what the industry
would be. Cost cutting had an impact on
the capability of the risk team.
It’s like they’re looking at the grass but
missing the trees. Also stock risks. In a lot
of cases [the trades/positions] are
completely inappropriate for the client.
From the start we were told that risk
managers are there to help but every time
we go to them we get [kicked]. We need
someone to coach us and train us to bring
our standards up to theirs. They can’t be
our coach and our regulators.
It's not about help. Risk don't help us. They
are like the guard dogs. They are not here
to help us they are here to bite us if we get
too close.
Risk is seen as a cost centre that cuts into
revenue to reduce profit. It’s seen as a
hindrance more than a help. And the reason
they’re seen that way is because they don’t
understand the day-to-day business of advisers.
They aren’t commercial. They just say, “No, you
can’t do that.” Which is fine, but then don’t just
say no, tell me how I can do it whilst still being
compliant.
When you ask a question you don’t get a clear
answer. It seems that they don’t want to stick
their neck out. So you do what you think is the
right thing. A lot of advisers will be sitting on
barrels of dynamite and don’t even know it’s
wrong.
Agree, Strongly
agree
Neutral Strongly disagree,
Disagree
Risk Culture Survey results, % distribution
% of behaviours selected as representative of
MPW across all interviews
Behaviours relating to “Risk Governance”
Risk behaviour interview analysis
• 50% of people selected “Confusing
messages regarding personal
accountability “ as ‘more like’ MPW
• 43% selected “Overlooking input
from risk professionals (RMG and
internal) when making key risk
decisions”
Risk Culture Survey results, % distribution
[Here] you are given the latitude to do
something, but at other firms the
governance and compliance [of this
freedom] is better handled.
46
Confidential & Commercially Sensitive
MGL.0001.0003.0232
Sidelined risk function – Drivers B
Sidelined risk function
Inability to influence
Disincentive to drive genuine impact
Historical mindset of reporting to the business
In the past, the structure created reporting relationships between risk and the business (e.g. promotion decisions)
Historically, business management influenced risk function financial rewards and profit share
Lack of independence
Lack of ownership
Overly protective risk leadership does not always support local risk staff to escalate concerns, particularly systemic issues
Business has influence over risk function via resource pressure
Prevailing reinforcement to align with the business
Senior leadership undermines the risk function
Central risk team is disconnected from the regional risk teams
Risk leadership undermines local risk management thereby discouraging issues being raised
Risk function is not empowered
State managers have the ability to override risk decisions
Advisers do not see the risk decision as final and seek ways to circumvent it
The role of risk is poorly defined
Disparity between the business and risk function regarding who ‘owns’ risk
Risk function perceives role to be one of giving advice rather than managing risk-related outcomes
Advisers’ desire for risk team to play a coaching role undermines their role in enforcement
Lack of performance metrics around the risk function’s impact in the business
Lack of clarity in the delineation of accountability between the advice risk analysts and risk managers
1
2
Key drivers
Branches over page See evidence under corresponding
number on following page n Theme 47
Confidential & Commercially Sensitive
MGL.0001.0003.0233
2638 36 27 22 52 31 31 38 20 15 65
80 10 10 70 20 10 56 44
Sidelined risk function – Evidence B
Disincentive to drive genuine impact
Perception that the risk function is too embedded in the business
to be sufficiently independent
Risk function is undermined by its own leadership and the business 1 2
All
People in MPW are disciplined if they do not
adhere to risk management policies, processes
and procedures
People in MPW are penalised if they take
unacceptable risks, even if their actions
generate positive results
I feel confident that I will not be penalised for
raising risk management concerns
Risk
Agree, Strongly
agree
Neutral Strongly disagree,
Disagree
The risk function is willing to
work around policies for the
business
Compliance is seen as optional – and this
lack of ownership and accountability is
particularly felt by the risk function
Low confidence amongst risk
staff about raising concerns
...people in this team have been here a
long time. They have lots invested in the
business...
- Risk
Risk is joined at the hip with
management.
The State Manager delivered the
breach, the consequences were a chat
with the State Manager, told to fix the
files reviewed, but not all of the other
files. There was nothing in there about it
being raised to ASIC. It appears it’s just
blown over...
Their attitude is, if an adviser blows the
client up, well he’s an adviser, he
recommended it, it’s his problem. Maybe
they’re more concerned with protecting
their job than actively managing risk.
Where individuals don’t believe
compliance activities offer value they push
back through State Managers then MPW
leaders and up.
We had a guy who was terrible. He failed
2 BRPs. They recommended that they
terminate his contract. It went to Risk,
[they] agreed. It went to the State
Manager, he agreed. But months passed
and he was still here. The State Manager
said, “we are just waiting til year end”.
After year end, more months passed.
Even now, he's still here. ...and then there are other instances
where the adviser does a deal [obtains an
exception from state manager] and it
[paying for the error] doesn’t happen...
It's a great example of 'us and them’. But
it's not. You [risk] are leaders too. They
say, “Oh, state leaders are bad”, but
whose job is it to provide state managers
with good information and support?
The business is not understood from a
broader RMG perspective, and the
relationships that should exist between
partners does not.
20 20 60
There are often instances where working
around a risk management policy is necessary
to meet commercial goals
Risk Culture Survey results, % distribution
I wouldn’t say the risk guy’s decision is
final. Should I think that? I don’t think so
48
Confidential & Commercially Sensitive
MGL.0001.0003.0234
Data Sources – MPW Risk Culture Survey
Risk Culture Survey Survey Demographics
• Graphs used in this report use data from the Risk Culture Survey
administered between 27 February to 13 March
• The distribution list staff within MPW Australia, excluding parts of the
business deemed to be out of scope for the EU (e.g. Private Bank) and
include non-MPW staff who work with MPW on a regular basis (e.g. IT)
• The survey received 468 responses (79.4%)
• For all questions, respondents were provided with a statement and
asked to select the option that best describes their view: strongly
disagree, disagree, neutral, agree, strongly agree or not applicable
• The percentages shown in the graphs in this report illustrate the
percentage of respondents that disagree (i.e. strongly agree or
disagree), are neutral, or agree (i.e. agree or strongly agree), excluding
the responses of those who answered ‘N/A’
• Unless otherwise stated, the group relates to all respondents
• The illustration below explains the graphs used
The Risk Culture Survey probed participant’s risk mindsets and behaviours, providing a valuable data point to assess prevalence across MPW
31 23 38
People in MPW are penalised if they take unacceptable
risks, even if their actions generate positive results'
%
distribution
Survey question
Red box highlights
negative result
illustrating
detrimental risk
mindsets or
behaviours % of
respondents who
disagree or
strongly disagree
% of
respondents who
agree or strongly
agree
% of
respondents
answering
neutral
• Graphs used in this report use data from the Risk Culture Survey
administered between 27 February to 13 March
• The distribution list staff within MPW Australia, excluding parts of the
business deemed to be out of scope for the EU (e.g. Private Bank) and
include non-MPW staff who work with MPW on a regular basis (e.g. IT)
• The survey received 468 responses (79.4%)
• For all questions, respondents were provided with a statement and
asked to select the option that best describes their view: strongly
disagree, disagree, neutral, agree, strongly agree or not applicable
• The percentages shown in the graphs in this report illustrate the
percentage of respondents that disagree (i.e. strongly agree or
disagree), are neutral, or agree (i.e. agree or strongly agree), excluding
the responses of those who answered ‘N/A’
• Unless otherwise stated, the group relates to all respondents
• The illustration below explains the graphs used
50
Confidential & Commercially Sensitive
MGL.0001.0003.0236
51
Data Sources – Interviews
Behaviour Interviews Deep Structured Interviews (DSIs)
• 58 face to face behaviour Interviews and a further 19 telephone
interviews were conducted, focussed on observing risk behaviours and
understanding people’s perceptions
• Participants included 15 key roles (e.g. Leadership and State
Managers), 5 State Risk Managers, 28 volunteers who self selected
through the survey process and 30 randomly selected advisers /
assistants from across 5 states and career levels
• Quotes from behaviour interviews (and DSIs) have been illustrated in
speech bubbles. These quotes have been extracted from notes taken
during the course of the interviews
• Demographic information has not been provided to protect the
confidentiality of interviews
During the course of the Risk Culture Review, 120 interviews were conducted providing insight into the risk mindsets and behaviours of a broad
cross section of MPW
• 43 ‘Deep Structured Interviews’ were conducted to identify the root
causes that drive risk-related behaviours including understanding
peoples mindsets and other factors.
• Participants included 7 key roles, 4 State Risk Managers and 32
advisers / assistants from across the 5 states and career levels
• The following statements , distilling key insights from the behaviour
interviews, provided the basis for discussion:
• MPW Australia’s organisational model (“400 individual
businesses”) recruits and provides freedom for many different
types of advisers; however the rules and boundaries people are
expected to operate within are unclear.
• The effectiveness of the risk function has eroded over the past few
years, and many aspects are treated as ‘form over function’.
• People feel varying levels of personal accountability for different
types of risk – for example, compliance risk versus financial risk.
• There is some lack of openness in MPW Australia, including
candid discussion across levels and teams regarding risk issues,
errors and concerns.
• Management, advisers and other staff sometimes seek to influence
each other in ways that are not constructive and/or appropriate.
• Leadership are very focused on revenue and key relationships, and
don’t always ‘walk the talk’ when it comes to risk and values.
• Consequences for non-compliance are often managed
inconsistently.
• Continuous development on risk and other technical topics is often
approached from a compliance angle (for example, meeting
licensing requirements) rather than genuine skill building.
• Risk-related values and standards of individual behaviour vary
widely across the business.
22 33 45
Risk culture indicator
% of ‘Detrimental’
behaviours
selected as “more
like MPW”
% of ‘Desirable’
behaviours
selected as
“more like MPW”
% of
‘Developing’
behaviours
selected as
“more like MPW”
Behaviours relating to “Communications”
% of behaviours selected as representative of
MPW across all interviews
Confidential & Commercially Sensitive
MGL.0001.0003.0237
52
Data Sources – Organisation Mechanisms Review and Fact-Based Analysis
Organisation Mechanism Review Fact Based Analysis
• An ‘Organisational Mechanisms Review’ evaluated the prevalence of
organisational mechanisms (e.g., systems, processes, procedures and
other formal aspects of the organisation) that support and encourage
desirable risk behaviours in the business
• 7 individuals from across the business provided a range of
documentation towards the review
• In total, 125 artefacts were reviewed including policies, risk reporting,
strategies, and charters
• These artefacts were assessed according to the Risk Mindsets &
Behaviours framework
During the course of the Risk Culture Review, 120 interviews were conducted providing insight into the risk mindsets and behaviours of a broad
cross section of MPW
• Data analysis was used to confirm if perceived behaviours are actually
occurring, and to draw insight of knock-on effects
• This process involved testing behavioural and root-cause hypotheses
with Macquarie data to establish a fact-base for those hypotheses
Embedded
Range of organisational
mechanisms to facilitate visible
involvement and role modelling
of senior leaders in risk issues
Evidenced
Senior leaders
required to participate
in some risk issues
Not Evidenced
Little systematic involvement
of senior leaders in risk-related
activities and/or
communications
Senior Leadership
Risk culture indicator
Rating of level of evidence
for mechanisms supporting
the risk culture indicator
Adl.
Bris.
Mel.
Per.
Syd.
Jun
11 Dec
11
Jun
12
Dec
12
Mar
13
No
advisers
Audited
In 2012
53
66
71
36
149
59%
49%
59%
9%
14%
ARA position filled
ARA position vacant
Ave = 26%
for locations
with gaps in
ARA
resource
Ave = 53%
for locations
with ARA
continuity
Example Analysis
Confidential & Commercially Sensitive
MGL.0001.0003.0238
54
Risk Culture Review – Overview of Approach
This review uses the Macquarie’s risk culture methodology and follows a two tier approach to identify the prevalent risk-related behaviours
(Tier 1) and then probe key areas to understand the root causes for why people behave the way they do (Tier 2).
Tier 1 – Identifying Risk Behaviours (Complete)
Tier 1 focuses on identifying risk-related behaviours, both desirable and detrimental.
The outcome is the identification of key focus areas to explore in Tier 2. The following
research and analysis techniques were used:
Behavioural Interviews
Observing risk behaviours and understanding people’s perceptions
• 58 x face-to-face interviews completed across 5 States
• 19 x structured telephone interviews completed
• Includes 28 volunteers who self selected through the survey process
Risk Culture Survey
Gaining perspective on the prevalence of risk-related behaviours
• 467 people responded over a two week period
• High response rate (79.4%)
Organisational Mechanism Review
Reviewing mechanisms to understand how they reinforce a clear expectation of
risk behaviour
• 91 files/artefacts reviewed (e.g. policies, risk reporting, strategies, charters)
Tier 2 – Understanding why people behave the way they do (Commenced)
Tier 2 seeks to identify the root causes that drive risk-related behaviours including
understanding peoples mindsets and other factors. The outcome is an action plan to
remediate areas of weakness in the MPW risk culture.
Key activities include:
Risk Culture Framework
• 40 x Deep Structured Interviews (DSIs) across 5 States (from 26 March)
• Fact Based Analysis to quantify behaviours and identify implications
• Workshop to present synthesised findings back to the leadership team with
the goal of understanding current risk culture and define actions and
accountabilities (Targeted for 1 May)
Confidential & Commercially Sensitive
MGL.0001.0003.0240
Motivation
The reasons why
people manage risk the
way they do
Risk Culture Review: Tier 1 Snapshot
Weaknesses identified across all sixteen risk culture indicators are systemic, an emerging theme is that risk management efficacy and proactive
activities to promote risk understanding have eroded over time.
These findings are a ‘snapshot’ of what has been heard to date, further analysis is required in the next stage of the review to identify root causes.
• Advisers have a strong client orientation and ‘want to do the right thing’ (however, feel that they are not supported to do so)
• Since the announcement of the EU and impending FoFA changes, people recognise the need for change and greater focus on risk and compliance
• New MPW leadership and direction have set the stage for transformational change
• ‘Informal’ teams and networks operate within larger offices (in pockets) and have the potential to be leveraged to drive change
• ‘400 independent businesses’ within which the management of risk is inconsistent and often seen as the responsibility of Risk and
Compliance teams
• Strong strategic focus on revenue and growth, often at the expense of appropriate risk behaviours
• Systems and processes are seen as laborious and cumbersome, resulting in manual workarounds or non-compliance
Organisation
How MPW is structured
and what is valued
• Leader behaviours do not consistently reinforce risk messages
• Open and constructive challenge is not a strong feature within the business
• Low adviser confidence in their personal understanding of risk and compliance obligations and a lack of supporting mechanisms
provided by MPW
• Absence of systematic risk assessment (capability and appetite) through the recruitment process
• Inconsistent MPW staff inductions fail to set risk obligation and behaviour expectations
• Consequence management is seen as discretionary, untimely, with many precedents for exception
• Performance appraisal processes are lacking and rewards focus on revenue at the expense of risk
• Lack of clarity of risk accountabilities, including the definition of ‘risk’, the definition of the State Manager role and rules/boundaries
Relationships
How people in MPW
interact with others
Identified Risk Culture Challenges
Strengths to Build On
Risk Competence
The collective risk
management
competence in MPW
55
Confidential & Commercially Sensitive
MGL.0001.0003.0241
• The MPW business model is described as a ‘franchise’ of independent businesses
lacking a consistent end-to-end risk management approach
• Participants report a lack of understanding around personal accountability for risk
• Many interviewees implied that risk management is the responsibility of the Risk and
Compliance teams
• Risk management is perceived to be secondary to revenue generation
Organisation
• ‘400 independent businesses’ within which the management of risk is inconsistent and often seen as the responsibility of Risk and Compliance teams
• Strong strategic focus on revenue and growth, often at the expense of appropriate risk behaviours
• Systems and processes are seen as laborious and cumbersome, resulting in manual workarounds or non-compliance
Behavioural Interview Insight
• The risk management framework and related policies are recognised for their intent,
however, seen as poorly adapted to suit day-to-day work
• Risk staff are valued but have limited input into business strategy
• Risk and reporting are a low priority compared to financial performance
• Half of respondents indicated that the tension between RMG and the business is
inevitable because their goals are different
Summary Insights
Organisational Mechanism Insight
Survey Insight
Strongly Agree Agree Neutral Disagree Strongly Disagree
• Strong strategic focus on revenue and growth
• Explicit alignment of organisational goals and values, business strategy, and risk
principles is lacking
• Processes and procedures are regularly updated, but may not be embedded into day-
to-day work
• Delineation of risk responsibility is somewhat unclear
In BFS and MPW risk is delegated to
the Compliance Team - there is no
business ownership
Risk governance is operationally-
focused, and the hard conversations are
not happening
You’ve got 400 Advisers running 400
businesses. But that is a risk. You’ve
got 400 guys running a business their
own way
Revenue is valued, not risk
management
'MPW is quick to adapt its risk
management policies, processes
and procedures as significant
changes occur in the business
People in MPW prioritise risk
management and reporting
Leaders in MPW demand financial
performance irrespective of how it
is achieved (R)
Our risk management
professionals take a lead role in
guiding key risk decisions
(R) Indicates a question asked in a negative context
How the organisational
environment is structured and
what is valued
11%
9%
10%
28%
16%
23%
39%
23%
26%
34%
25%
29%
46%
29%
20%
9%
9%
5%
7%
0% 20% 40% 60% 80% 100%
56
Confidential & Commercially Sensitive
MGL.0001.0003.0242
Relationships
• Leader behaviours do not consistently reinforce risk messages
• Open and constructive challenge is not a strong feature within the business
Behavioural Interview Insight
• People generally feel an obligation to challenge, however, open and constructive
challenge is not regularly occurring
• Over a third of respondents agree that it’s expected they will do as they are told and
that revenue is valued by leaders above risk and compliance requirements
• Current communication channels are seen to be ineffective and communications from
leaders are at times insufficient and non-transparent
Summary Insights
Organisational Mechanism Insight
Survey Insight
Message coming from Sydney is not
always as strong as it might be
When things go wrong, we don't know
why - It's not communicated. We don't
talk about the behaviours here a lot
There is a huge culture of ranking and
remunerating by revenue
You have 350 sole traders that don't
see it as their role to call out or
challenge behaviour
People in MPW challenge others
constructively if they think that
they are not doing the right thing
I receive useful communications
on all important issues related to
risk in MPW
Senior Macquarie leaders
demand results - it doesn’t matter
how the organisation gets them
(R)
Strongly Agree Agree Neutral Disagree Strongly Disagree
• Staff indicate that managers are too reactive and focus on issue management
• People perceive a lack of proactive emphasis on coaching and leadership
• Some staff are reluctant to challenge either due to the siloed [adviser] business focus
or fear of consequence
• Some people had experienced ‘filtering’ of messages when risk issues were escalated
• Email is described as the main communication channel but seen as untailored and
ineffective, with a desire for greater emphasis on other channels (e.g. targeted group
knowledge sharing sessions)
• Outside of the senior leadership team, few forums exist to facilitate open discussion
around risk within and across teams and levels
People in MPW are expected to
do what they are told, no matter
what (R)
How people in the
organisation interact with
others
(R) Indicates a question asked in a negative context
8%
10%
5%
26%
31%
38%
22%
26%
29%
22%
31%
35%
31%
24%
36%
5%
4%
6%
6%
0% 20% 40% 60% 80% 100%
57
Confidential & Commercially Sensitive
MGL.0001.0003.0243
Motivation
• Consequence management is seen as discretionary, untimely, with many precedents for exception
• Performance appraisal processes are lacking and rewards focus on revenue at the expense of risk
• Lack of clarity of risk accountabilities, including the definition of ‘risk’, the definition of the State Manager role and rules/boundaries
Behavioural Interview Insight
• No formal performance appraisal mechanism for advisers
• File reviews are conducted on a sampled basis, remediation focuses on the identified
issues within sampled files only
• There is evidence of consequence and remediation planning for individuals where
behaviour clearly contradicts risk principles
• Role definitions that clarify accountabilities and personal responsibilities are lacking
• Advisers report a lack of constructive feedback regarding risk activities
• Participants report revenue-focused incentives and instances of favouritism (e.g. leads
going to ‘favourites’ first)
• People report that lower level breaches are taken less seriously and that
consequences for high revenue generators can be over-ruled
• Participants perceive limited reward for people who manage risk effectively, citing
limited punishment for risk taking and an emphasis on meeting revenue KPIs
• Many participants indicate they get no feedback on their risk capability
• Many people do not appear to accept accountability for managing risk or admit to
mistakes
• People indicate an understanding and consideration of MPW’s risk appetite when
making decisions involving risk, but may also bend the rules when it suits them
Summary Insights
Organisational Mechanism Insight
Survey Insight
Where people who contravened a
regulation and had a time period set to
rectify, but then didn't meet this
timeframe and asked for an extension,
there should have been a breach…
There is no improvement in your pay to
reduce risk…
Reducing risk in business comes at a
huge cost if you have inadequate tools
and it takes an age to get compliant… If
people can work around and focus on
revenue they do… They've really gotta stuff up to get
penalised…
Strongly Agree Agree Neutral Disagree Strongly Disagree
The reasons why people
manage the risk the way
they do
People in MPW are penalised if
they take unacceptable risks,
even if their actions generate
positive results'
I regularly receive feedback on my
ability to manage risk effectively
People in MPW admit when they
have made mistakes
People in MPW accept
accountability for managing all the
risks that they are responsible for
(R) Indicates a question asked in a negative context
8%
10%
7%
8%
23%
33%
26%
28%
31%
27%
29%
33%
31%
25%
34%
30%
7%
6%
3%
1%
0% 20% 40% 60% 80% 100%
58
Confidential & Commercially Sensitive
MGL.0001.0003.0244
Risk Competence
• Low adviser confidence in their personal understanding of risk and compliance obligations and a lack of supporting mechanisms provided by MPW
• Absence of systematic risk assessment (capability and appetite) through the recruitment process
• Inconsistent MPW staff inductions fail to set risk obligation and behaviour expectations
Behavioural Interview Insight
• Some knowledge sharing channels exist with content on key risk topics
• Few systematic methods exist to refresh risk competency
• Few mechanisms exist for assessing risk competence / attitude during recruitment or to
provide a consistent induction experience to set clear behaviour expectations
• Risk capability and knowledge development activities are described as ‘tick-the-box’
• Participants perceive a difference of risk skill between planners and brokers
• MPW induction processes are described inconsistent, on-boarding activities are left up
to the business or ‘who you share a desk with’
• Participants indicate that programs to support knowledge sharing for Advisers have
gradually been discontinued
• People believe they take the time to coach and teach others, yet this is also reported as
being lacking in the business
• The majority of participants agree there is a clear expectation for them to adhere to risk
and compliance requirements, these expectations are not adequately communicated or
assessed during, recruitment, induction or performance feedback processes
• Participants indicate that while they are expected to keep skills current, they are not
supported to do so
Summary Insights
Organisational Mechanism Insight
Survey Insight
I feel as though I would have benefited
from a comprehensive training course
as part of the induction
It’s a key weakness that we make the
same mistakes or we identify issues and
don’t really address them
Coaching is limited to only the minimum
standard of risk and compliance
Prioritising active knowledge sharing
around risk has only really started since
the EU
People in MPW take the time to
teach others how to manage risk
more effectively
An individuals risk management
capabilities are assessed during
our recruitment process
We are expected to keep our risk
management skills current
Strongly Agree Agree Neutral Disagree Strongly Disagree
The collective risk management
competence of the organisation
(R) Indicates a question asked in a negative context
9%
13%
34%
32%
29%
31%
9%
25%
21%
60%
4%
3%
25%
0% 20% 40% 60% 80% 100%
59
Confidential & Commercially Sensitive
MGL.0001.0003.0245