Why has financial services gone so badly wrong?

As there are so many nice people in financial services, why has it all gone so badly wrong?

Last week I was lucky, even privileged, to attend two of the warmest and fondest ‘retirement’ send-offs I can remember. On Wednesday, the industry said goodbye to Money Management’s Editor for the last 25 years Janet Walford OBE who “encapsulates what FT journalism is about” including a fulsome and heartfelt tribute by the Mail on Sunday’s Jeff Prestridge.

On Thursday, high in HSBC’s Canary Wharf offices, all three previous Chairmen – Daniel Godfrey, Ron Sandler and Otto Thoresen – paid tribute to Wendy van den Hende, the Personal Finance Education Group’s first Chief Executive. Moneysavingexpert’s Martin Lewis, the closest we have to a personal finance celebrity, was beamed in to endorse Wendy’s contribution to financial education in schools.

Janet and Wendy symbolize everything that makes the financial services world so enjoyable to work in. The words collected by colleagues for Wendy said it all – great leader, inspirational, passionate, respected, straight to the point etc. Both rooms were full of warm feelings and great people, and I was once again left wondering why, as there are so many nice people in financial services, has it all gone so badly wrong?

Well first of all has it? In my view yes, the level of trust between the public and the industry has never been lower. We have a savings gap, a protection gap and an advice gap – and little sign of improvement in any of them. Too few people have adequate insurance and protection, many people haven’t saved enough for retirement or a rainy day and access to face to face financial advice is set to decline even further.

There are serious obstacles to overcome to change any of this. Banking can never regain trust while the charade of “free banking” exists. The asset management industry can’t keep increasing charges while interest rates remain low. We can’t persist with a regime that thinks simple products are automatically less risky than complex ones – or worse still, that simplified products are in some way a substitute for financial advice. Beneath all of this, though, lie two systemic problems.

The savings, advice and the protection gap are real. The problem is not what the current regulator does as much as what it doesn’t do.

On the industry side we have to align ourselves with our customers. Too many financial services businesses claim to be “customer centric” and built to serve their customers when they aren’t. Shareholders, profits and bonuses are all too often the only things prioritised. Our industry will only really succeed when a sense of shared value exists, when companies, employees, shareholders and customers benefit together. “We make money when you make money” should be the cornerstone of our industry. Nationwide’s new advertising slogan “on your side” should not be something confined to the mutual sector.

However if the industry needs to change, so does the current myopic political and regulatory structure. The structure is almost solely geared to preventing people from taking the wrong decisions and not protecting them from the risks of taking no decisions at all. As a result a shrinking advice sector is shrunk further while a whole generation will reach retirement short of money. The savings, advice and protection gaps are real. The problem is not what the current regulator does as much as what it doesn’t do. The political and regulatory structure should be charged with continually answering two further questions:

“Are Britons saving enough during their working lives to give them a satisfactory retirement?”
“Are Britons taking adequate steps to protect themselves and their families from the known risks of life?”

Government, society and the Treasury Select Committee should be able to quiz the regulatory structure about the demand side as well as the supply side.

Hopefully the industry would then change its priorities as society sets it the right goals. And then future Janet Walfords and Wendy van den Hendes will work in a sector that is not only full of nice people, but is respected for doing a good job for the British people.

Over to you: Do you agree with Tony’s views? What should the industry be doing to focus the Government’s attention in the right places? Please leave a comment below and let me know your thoughts.

Click for more guest blogs:

Jeff Prestridge: Why we need an annual ‘protection awareness day

Edmund Tirbutt: Is it time for GRiD to spread its wings into Individual Protection?

John Lappin: Are we assuming too many things about protection advice?

The thoughts and opinions in the guest blogs belong to the authors and do not necessarily represent the views of Roger Edwards or Bright Grey/ Scottish Provident.

Tony Langham

Chief Executive of Lansons Communications