Editor’s note: Nick Cann, director, at the Institute of Financial Planning, pulls no punches in this critique of the banking and financial services sector in the wake of recent scandals, and sets out possible remedies. This publication is grateful for this article; the views here are, however, not necessarily those of this website.
Yet another public inquiry and scandal have engulfed the financial services industry in the UK, as Barclays finds itself in the firing line for manipulating LIBOR inter-bank rates.
Unfortunately, the resignation of the organisation’s chairman, chief executive and chief operating officer, along with a £300 million fine, fails to go far enough in altering the culture of greed and arrogance that dominates some quarters of this industry.
Consumers continue to bear the brunt of this rollercoaster ride as it is they who are left unsure of which financial institutions to trust with their cash, often resulting in them doing either nothing to improve their financial situation or worse still, making the wrong move.
Not even shareholders of these large companies themselves can benefit from the scandals, as shares prices and dividend growth remain under severe pressure. The beneficiaries in nearly all cases are those responsible for the greed and who are able to define their own rules and remuneration programmes.
As a result, the Institute of Financial Planning is backing the Question of Trust Campaign in a bid to more widely engage with the financial services community in helping put a stop to this culture.
There are a number of areas of concern that desperately need to be addressed, particularly as we are still in the midst of global economic turmoil. People everywhere need to take more action to plan for what seems like an uncertain future and they need to be able to trust the service provider they decide upon.
The merging of investment and retail banks has brought different drivers into these businesses. The leadership and governance of these organisations have either been asleep at the wheel or driving business to meet their own outcomes and serve their own objectives.
It beggars belief that financial institutions have not yet realised that if their customer trusts them, they will do more business with them. After all, good relationships are absolutely essential in building a successful business. It is equally astonishing that historically their actions have only been punished with fines which are easily met.
One thing after another
For too long now we have had to endure one mis-selling scandal after another so that the good work that is carried out gets completely overshadowed. More often than not, those selling solutions have been incentivised to sell more and more and as a result, improper activity has taken place.
Research carried out by the campaign with YouGov amongst chief executives of financial services organisations in the UK confirmed our perception and academic research. Not only is there a lack of trust but outside of individual corporate activity, nothing was being done centrally to arrest this decline. The campaign expects to fulfil this role and motivate others to engage with it and we hope evidence of success will perhaps give confidence to the government and regulators to support the campaign.
We would urge wealth managers to play their part, helping to restore client trust and forge long-lasting relationships to build confidence in the sector.
The economic crisis of 2008, followed by scandal after scandal, has understandably unsettled retail and high net worth investors, prompting some to lose their appetite for risk assets and become disengaged from a financial system they no longer understand.
Investors are calling out for greater transparency, more accurate information and better insights into the workings of their wealth managers. Only when these requirements have been fulfilled, will they be able to restore trust and thus increase involvement with clients.
Wealth managers must ensure that clients are sold products that meet their risk appetite and liquidity needs and should, in turn, provide regular feedback to the client. This would serve to raise the level of confidence among clients.
The subject of ethics remains crucial; establishing clear values engages both the staff and the customers of the business to ensure they are keeping on the right track.
Trust can take years to build and mere minutes to lose. Words need to be backed up by actions and consistent delivery of statements of intent. This groundbreaking campaign requires the buy-in of the broader financial services sector to ensure success, from banks to financial advisors to wealth managers. Right across the board, we must work together to help strengthen confidence in what is one of the world’s leading financial hubs. The catalyst for change is now underway.