Many years ago, my PA of the time was a ‘green’ who liked to be called ‘Leaf’. As this was the 80s, the views of the non-driving environmentalist were somewhat unfashionable. Leaf had ‘interesting views’ on a range of subjects, but one crossed my mind recently when I was thinking about risk, regulation and protection. Leaf used to espouse the view that the quickest way to reduce the number of dangerous drivers on the road was to mandate that a large dagger be inserted into the steering wheel of the car! Whilst this was not her own original thought (I have heard it expressed by others), the principle that drivers would be far more careful about the way they drive and risks that they take if the consequence of doing so was the potential dagger through the heart!
Having worked in Financial Services for many years with roles in Sales & Marketing and Regulation, I have witnessed a remorseless increase in the attempts to control the risks of inappropriate advice being given to the consumer. I applaud the principle and much of the effort, but I also share the frustration of constantly being expected to create and keep the mountain of documentation/data records that show that the right procedures and outcomes have been applied. The reason that the regulation has continued to grow is twofold – first, regulators rarely propose a reduction in regulation (especially if it is their career) and second, we have suffered with ongoing evidence that bad practice continues. Indeed, even where people follow the rules, some have done so as a sop and found ways to gain at the expense of the consumers best interests.
A major bank has had its sales practices exposed by a leaked document showing how they ‘incentivise’ (or pressurise) staff to sell riskier product choices with greater points value or commission to influence performance. The headlines do not reflect well on the bank themselves, but they also tarnish other Financial Institutions and the Financial Planning market generally. Consumers should be able to trust all advisers and can find it difficult to distinguish good from bad. However, it is made worse when the corporate culture of what should be a respected brand is driving the policy and expectations of adviser behaviour in negative ways. The bank claims that its processes adhere to the regulations and that they would assess the client’s needs along with attitude to risk etc before recommending a product. Whilst they probably do, it is also the case that skewing the rewards to offer more for one product recommendation than another is likely to drive behaviour towards a particular outcome.
Perhaps RDR will address such policies and behaviour, but if people are intent on finding ways around rules and/or choose to ignore risk, there is no absolute guarantee that consumers will be protected.
In one of my previous roles as a director of a Plc, one of the things that became a priority after we floated the company on the Stock Exchange was ensuring that we were aware of and complied with Corporate Governance standards. Most of the Combined Code is common sense, though it is interesting how many times large Corporations selectively ignore some of the standards if they don’t suite their company or personal goals. Alongside our ‘formalised’ application of the Code, we also took out Directors and Officers Liability Insurance. At the time, I didn’t even consider not doing so. However, it got me thinking about why I should feel the need to ‘insure’ the risk that my behaviour might not be up to scratch and another question that came to mind was why was it right that the Shareholders should pay for such insurance (as with most companies, it was a business expense). Ultimately, in extreme cases, we have seen some Criminal Prosecutions of Directors, but as with the dagger in the steering wheel, maybe one way of ensuring that Directors retain a focus on their own ‘moral compass’ is by not offering them protection funded by the shareholder (or maybe we should ask why they need it at all). Regulation can and does offer a degree of security and protection, insurance can provide some security in the event of failure. However, knowing what is right and wrong and applying that for the good of the consumer should severely reduce if not remove the need for such arrangements.
