Financial services firms are often accused of looking after their own interests before that of the c...
Financial services firms are often accused of looking after their own interests before that of the consumer.
Rather than flying in the face of adversity, Laurie Edmans at Aegon UK, says "less than open" corporate policies on consumer information and charges need to change, to put long-term business sense and public image ahead of short-term profits.
It seems a negative way to look at it, but achieving success under the new regulator has a lot to do with avoiding the problems that have arisen in the past.
What I recommend is we look at the nature of some of the problems rather than complain about them.
Here are a few do's and don'ts so they can be avoided in the future.
We - the financial services industry - are accused of a long list of problems. Pensions mis-selling; specious performance data; misleading endowment mortgage projections; poor value products; confusing charging structures; dishonouring annuity guarantees; etc, etc, etc. By no means all of these are as open and shut cases as is sometimes implied, but it is no good just hoping for a whitewash.
Everybody is fed up with getting beaten up by commentators. But sometimes we do ask for it. My first don't is 'don't ask for it.'
Here's an example:
In Money Management, September 2000, the with-profit endowment survey showed that the average returns on 25 year policies paid out in that year were:
If surrendered after 3 years :- 27% p.a.
If surrendered after 10 years:+ 3.75% p.a.
On maturity after 25 years:+ 13% p.a.
The consumer bodies have now noticed this means the average return - taking into account everyone who started a policy - is very low, and in the case of some companies, the return is probably negative.
This doesn't mean all with-profits policies are evil or that endowment policies can't do a good job. But it does mean that to compare the yield paid just to maturing policies with, say, building society deposits or unit trusts - that don't have the same downside in early years - is specious. Yet you can still see it in recent advertisements from the industry that using current marketing methods is asking for trouble.
This sort of thing leads to quotes like the following, from the Financial Times;
'.….you should think twice before entrusting a life assurance company with the care of your pet hamster, let alone your life savings'
The good news is that, via the life industry's 'Raising Standards' initiative, many of the practices - such as unclear charging structures - are being radically improved, and voluntarily. But it can't just be left to a central industry body to clean up the act.
A few of the other do's and don'ts:
Close the gap of knowledge between the board room and the front room - that way people will really know what's going on at the sharp end of the business.
Having applied this policy, many life company boards were amazed to discover what their direct sales forces had been doing during pension mis-selling.
Do use facts and supported arguments when making any policy representations
Historically, Government officials have been able to dismiss some of the input they have received from the industry on key issues, because it consisted of unsupported assertions or, at worst 'incoherent rant'.
Produce products and services you would buy for yourself
Self-evident, I think. If you are creating and marketing something that wouldn't buy, you can't fairly expect anyone else to buy it.
Don't think you can pull the wool over the regulator's eyes or that they don't know what they're talking about.
We are talking about the regulator. Some of the people who work for the regulator have been around the block a few times themselves - and even if some of them are new, the issues rise inexorably to the surface over time.
Don't confuse a change that damages your profitability with one that axiomatically damages consumer interests.
It might do, but the arguments need to be very strongly assembled.
Don't cry wolf too often about the impossibility of doing something.
We always seem to end up doing it somehow - so let's reserve the argument for the ones that really are impossible.
In short, how the industry decides to act determines how well our industry can do - and there is much more to making things work than just meeting a new set of regulations.
Laurie Edmans is head of corporate development at AEGON UK.
At PortfolioMetrix since April
'Humanises our offerings'
After facing adviser backlash
On 24 & 26 September