Climate change and financial regulation : challenges for the financial sector post the Global Financial Crisis

Regulation has played a significant role in shaping the financial services sector in Australia over the past few decades. Regulatory changes have included the establishment of the Australian Prudential Regulation Authority (APRA), floating the Australian dollar, allowing foreign financial institutions to operate domestically, the introduction of the superannuation guarantee charge, and the removal of interest rate controls. As the economy emerges from the worst financial crisis since the great depression, a new force of change that is recognised as one of the most significant sources of risk and opportunity facing the business community in the foreseeable future is that of climate change. Climate change is expected to be a significant change agent in the financial services sector as extreme weather patterns, sea level rises, and atmospheric changes impact on asset values (both investment and lending), project finance, and risk products. The financial services industry will be particularly affected by these developments, both as a provider of financial products (capital, credit, investment, advice, and insurance), and also through its powerful influence on the economy in terms of capital allocation. In addition, industry constituents will be heavily impacted by government regulation in this area (reporting, emissions trading and environmental policies), with respect to their own business practices and also those of their clients. This study reports the results of interviews conducted with senior members of the finance sector working in the sustainability area to gauge their perceptions of the challenges facing the sector with respect to climate change. Our results confirm that that regulatory intervention will be critical to climate change response gaining traction and momentum. In particular, regulatory certainty will promote engagement, particularly in relation to the Carbon Pollution Reduction Scheme (CPRS), with other developments needed in terms of information disclosure, performance and remuneration, and incentive programs. Accordingly, the significant potential risks and opportunities that climate change presents to the sector, and the broader economy, will in part be managed/realised only if a swift and significant regulatory response is achieved.

Household financial systems

In this paper we discuss some preliminary results of an ethnographic study focused on the ways money and financial issues are collaboratively handled within families. Families develop ‘systems’ or methods through which they organize and manage their everyday financial activities. These systems not only organize everyday family finances, but represent and shape family relationships. Through analysis of our ethnographic field study data, we develop four types of financial systems that we observed in the field: banking arrangements, physical hubs, goal-oriented systems and spatio-temporal organization. In this paper, we discuss examples of these systems and their implications for designing tools to support household financial practices.

The influence of financial risk tolerance and risk perception on individual investment decision-making in a financial advice context

The aim of this thesis is to examine how risk tolerance and risk perception, two important but often misunderstood constructs, jointly influence client investment decisions in a financial advice context. By distinguishing the roles of these two risk constructs in client decision-making, in this thesis a new direction in studying financial/investment risks is provided while practice and regulation in the financial services industry is potentially informed. Based on the literature relating to risks and individual decision-making, a theoretical framework is developed and relevant hypotheses are tested in two studies with financial adviser clients in Australia. Results reveal that financial risk tolerance influences asset allocation both directly and indirectly through risk perception. The intervening role of risk perception suggests that risk tolerance affects how clients perceive the riskiness of an investment product which influences client decision-making.

They also serve who only stand and wait

Purpose Waiting for service by customers is an important problem for many financial service marketers. Two new approaches are proposed. First, customer evaluation of the service is increased with an ambient scent. Second a cognitive variable is identified which different iates customers by the way they value time so that they can be segmented. Methodology Pretests included focus groups which highlighted financial services and a pilot test were foll owed by a main sample of 607 subjects. Structural equation modelling and multivariate analysis of covariance were used for analysis. Findings A cognitive variable, the need for time management can be used, together with demographic and customer net worth data, to segment a customer base. Two environmental interventions, music and scent, can increase customer satisfaction among customers kept waiting in a line. Research implications Two original approaches to a rapidly growing service marketing problem are identified. Practical implications Service contact points can reduce incidence of "queue rage" and enhance customer satisfaction by either or both of two simple modifications to the service environment or a preventive strategy of offering targeted customers an alternative. Originality A new method of segmentation and a new environmental intervention are proposed .

A tri-dimensional approach for auditing brand loyalty

Over the past twenty years brand loyalty has been an important topic for both marketing practitioners and academics. While practitioners have produced proprietary brand loyalty audit models, there has been little academic research to make transparent the methodology that underpins these audits and to enable practitioners to understand, develop and conduct their own audits. In this paper, we propose a framework for a brand loyalty audit that uses a tri-dimensional approach to brand loyalty, which includes behavioural loyalty and the two components of attitudinal loyalty: emotional and cognitive loyalty. In allowing for different levels and intensity of brand loyalty, this tri-dimensional approach is important from a managerial perspective. It means that loyalty strategies that arise from a brand audit can be made more effective by targeting the market segments that demonstrate the most appropriate combination of brand loyalty components. We propose a matrix with three dimensions (emotional, cognitive and behavioural loyalty) and two levels (high and low loyalty) to facilitate a brand loyalty audit. To demonstrate this matrix, we use the example of financial services, in particular a rewards-based credit card.

Empirical evaluation of a service analysis and design methodology

Service-orientation has gained widespread acceptance and is increasingly being employed as a paradigm for structuring both business and IT architectures. An earlier study of extant service analysis and design methodologies discovered a need for holistic approaches that equally account for both business and software services, which motivated the design of a new, consolidated service analysis and design methodology. A challenge in design-oriented research is to evaluate the utility of the newly created artefacts (here: the methodology), as they are often intended to become part of complex socio-technical systems. Therefore, after presenting a brief overview of the consolidated methodology, the paper discusses possible approaches for the “evaluate” phase of this design-science research process and presents the results of an empirical evaluation conducted in an Action Research study at one of Australia’s largest financial services providers.

Interest rate caps : protection or paternalism

In a context where over-indebtedness and financial exclusion have been recognised as problems in Australia, it is undesirable that those who can least afford it, pay a high cost for short-term consumer credit. Evidence points to an increase in consumer debt in Australia and consequential over-indebtedness which has been shown to lead to a wide range of social problems.2 There is also evidence of financial exclusion, where consumers suffer a lack of access to mainstream financial services, and in Australia this is particularly the case with regard to access to safe and affordable credit.3 Financial exclusion can only exacerbate over-indebtedness, given that financially excluded, predominantly low income consumers , have been shown to turn to high cost credit to meet their short term credit needs. This is a problem that has been explored most recently in the Victorian Consumer Credit Review...

Captured legislators and their twenty billion dollar annual superannuation cost legacy

By December 2010 total superannuation assets had reached $1.3 trillion, covering 94% of all Australians. This substantial growth was not a natural evolution. Rather it can be directly traced to three decades of bipartisan reform strategies based on a claimed public interest ideology. This article investigates the concerns raised by Superannuation Select Committees, consumer and union organisations, independent researchers and actuarial experts that, in contrast to the public interest rhetoric, the regulatory reforms have primarily achieved major private interest gains for powerful lobbyists. The findings of this analysis indicate that the democratic power of Australian governments to set economic policy agendas has been progressively eclipsed by the power of the financial services industry's producer groups. Rather than producing a best practice governance structure, fund members remain trapped in a post-reform cost paradox: no right of exit regardless of the deepening cost burden imposed. In an industry set to control a projected nominal figure of $6.7 trillion in superannuation assets by 2035, these findings suggest that the real change necessary to improve the deepening cost burden faced by fund members within a life-long, mandatory superannuation investment is now beyond any government's reach.

Regulating the cost of small loans : overdue or overkill?

Small-amount short-term lending began in 1994 in response to the initial exemption of such loans from consumer credit regulation. Growing demand for such loans now produces industry turnover of approximately $800 million each year. Regulators recognised early the need for consumer protection due to the vulnerability of borrowers and the emergence of various predatory practices. This led to reforms designed to regulate these loans, prevent particular misconduct and provide remedies against injustice. Some were enacted as part of the National Consumer Credit Protection Act 2009 (Cth), which also imposed licensing and responsible lending requirements on lenders and increased consumer access to remedies. The Government has now introduced the Consumer Credit and Corporations Amendment (Enhancements) Bill 2011 which limits the price that can be charged for credit and restricts access to small loans. This article examines the extensive reforms which have taken place in this sector, and compares these regulatory approaches with the “bright line approach” of the Enhancements Bill. The article argues that the repercussions of this step will require careful monitoring to ensure that further harm is not suffered by those least able to bear it, and that the government will also need to facilitate other, more sustainable, solutions to the problem that small loans are currently used to solve. After we wrote this article, the Report of the Parliamentary Joint Committee on Corporations and Financial Services and the Report of the Senate Economics Legislation Committee on the Enhancements Bill were released. These are referred to in a postscript.

The inherent international tax regime and its constraints on Australia's sovereignty

On 1 November 2011 the Minister for Financial Services and Superannuation, the Honourable Bill Shorten MP, announced that Australia would be undertaking a reform of the ‘transfer pricing rules in the income tax law and Australia’s future tax treaties to bring them into line with international best practice, improving the integrity and efficiency of the tax system.’ Mr Shorten stated that the reason for the reform was that ‘recent court decisions suggest our existing transfer pricing rules may be interpreted in a way that is out-of-kilter with international norms.’ Further, he stated that ‘the Government has asked the Treasury to review how the transfer pricing rules can be improved, including but not limited to how to be more in line with international best practice.’ He urged all interested parties to participate in this consultation process. On 16 March 2012, an Exposure Draft and accompanying Explanatory Memorandum outlining the proposed amendments to implement the first stage of the transfer pricing reforms were released. Within the proposed changes is the explicit embedding of the use of the OECD’s Model Tax Convention on Income and on Capital and Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations to help determine the arm’s length price. Does this mean that Australia engages in an international tax regime?

Australia's adoption of an international tax regime : to engage or not to engage?

On 1 November 2011 the Minister for Financial Services and Superannuation, the Honourable Bill Shorten MP, announced that Australia would be undertaking a reform of the ‘transfer pricing rules in the income tax law and Australia's future tax treaties to bring them into line with international best practice, improving the integrity and efficiency of the tax system.’ Mr Shorten stated that the reason for the reform was that ‘recent court decisions suggest our existing transfer pricing rules may be interpreted in a way that is out-of-kilter with international norms.’ Further, he stated that ‘the Government has asked the Treasury to review how the transfer pricing rules can be improved, including but not limited to how to be more in line with international best practice.’ He urged all interested parties to participate in this consultation process.

Qualitative and quantitative analysis of six sigma in service organizations

The concept of Six Sigma was initiated in the 1980s by Motorola. Since then it has been implemented in several manufacturing and service organizations. Till now Six Sigma implementation is mostly limited to healthcare and financial services in private sector. Its implementation is now gradually picking up in services such as call center, education, construction and related engineering etc. in private as well as public sector. Through a literature review, a questionnaire survey, and multiple case study approach the paper develops a conceptual framework to facilitate widening the scope of Six Sigma implementation in service organizations. Using grounded theory methodology, this study develops theory for Six Sigma implementation in service organizations. The study involves a questionnaire survey and case studies to understand and build a conceptual framework. The survey was conducted in service organizations in Singapore and exploratory in nature. The case studies involved three service organizations which implemented Six Sigma. The objective is to explore and understand the issues highlighted by the survey and the literature. The findings confirm the inclusion of critical success factors, critical-to-quality characteristics, and set of tools and techniques as observed from the literature. In case of key performance indicator, there are different interpretations about it in literature and also by industry practitioners. Some literature explain key performance indicator as performance metrics whereas some feel it as key process input or output variables, which is similar to interpretations by practitioners of Six Sigma. The response of not relevant and unknown to us as reasons for not implementing Six Sigma shows the need for understanding specific requirements of service organizations. Though much theoretical description is available about Six Sigma, but there has been limited rigorous academic research on it. This gap is far more pronounced about Six Sigma implementation in service organizations, where the theory is not mature enough. Identifying this need, the study contributes by going through theory building exercise and developing a conceptual framework to understand the issues involving its implementation in service organizations.

Are target date funds the easy bake option?

Target date funds provide a simple, automated approach to retirement savings in defined contribution plans. The passing of the Pension Protection Act of 2006 has seen an increase in the popularity of these funds in the United States, becoming the default option for many plans. However, recent research findings have challenged the easy bake or ‘set-and-forget’ nature of target date funds. This study explores some of the critical design features of target date funds (which shifts an individual’s asset allocation from growth to defensive assets following a pre-set glidepath) against a simple balanced (or target risk) fund design. Using both time-weighted and dollar-weighted returns, our results suggest that there is more to achieving successful retirement outcomes than the investor simply selecting a proposed year of retirement. Our findings can perhaps be summarized by Einstein’s famous epithet, that in the murky world of retirement product design, everything should be made as simple as possible, but not simpler.

Learning processes in creative service teams : towards a dynamic systems theory

The fastest-growing segment of jobs in the creative sector are in those firms that provide creative services to other sectors (Hearn, Goldsmith, Bridgstock, Rodgers 2014, this volume; Cunningham 2014, this volume). There are also a large number of Creative Services (Architecture and Design, Advertising and Marketing, Software and Digital Content occupations) workers embedded in organizations in other industry sectors (Cunningham and Higgs 2009). Ben Goldsmith (2014, this volume) shows, for example, that the Financial Services sector is the largest employer of digital creative talent in Australia. But why should this be? We argue it is because ‘knowledge-based intangibles are increasingly the source of value creation and hence of sustainable competitive advantage (Mudambi 2008, 186). This value creation occurs primarily at the research and development (R and D) and the marketing ends of the supply chain. Both of these areas require strong creative capabilities in order to design for, and to persuade, consumers. It is no surprise that Jess Rodgers (2014, this volume), in a study of Australia’s Manufacturing sector, found designers and advertising and marketing occupations to be the most numerous creative occupations. Greg Hearn and Ruth Bridgstock (2013, forthcoming) suggest ‘the creative heart of the creative economy […] is the social and organisational routines that manage the generation of cultural novelty, both tacit and codified, internal and external, and [cultural novelty’s] combination with other knowledges […] produce and capture value’. 2 Moreover, the main “social and organisational routine” is usually a team (for example, Grabher 2002; 2004).