The financial industry wants to know how it can make the general public trust it again. It has written reams of research, and organised seminars to discuss the problem. It has also, the majority of the time, entirely missed the point.
This lack of trust is not down to any specific incident. It isn’t payment protection insurance. It isn’t packaged bank accounts, unusable mobile-phone insurance, or even rip-off annuities. And we don’t dislike the fund-management industry because it somehow manages to underperform and to charge performance fees. These are all merely symptomatic of the real problem – lack of transparency.
Think about how you get charged for most financial services. Almost no one quotes a cost in pounds and pence. It’s always low-sounding percentages: 1%, 1.5%, 0.5% and so on. You might think this doesn’t matter. But it does. People in finance grasp percentages, but not everyone does. So quote a percentage cost and you aren’t actually telling someone the price.
That makes it hard for them to trust you. Now look at a brand that most of the finance industry loves to hate: Wonga. Its business model is based on lending money to the needy at rates well into the thousands of per cent. Shocking.
However, look not at the rate, but at what the website says. The main information is in pounds and pence. Want £200 for a week? That will cost you £19.89. Want £400? That’ll be £33.89. Miss a payment? £30. Wonga is very expensive. But it is also delightfully clear: 98% of users say it is “easy to use”. And there are a million of them. We might hate Wonga, but that doesn’t mean its users do. There’s a lesson here for the rest of the finance industry. Maybe price doesn’t matter as much as clarity – and the ability to compare prices.
Wonga isn’t the only company finding that clarity works. In Scotland, estate agency Mov8 charges a flat fee of £600 a sale. Its boards are everywhere. I have also just come across a new service from property agent Henry Pryor. I have long thought that anyone buying a house should hire an agent to work for them. After all, the estate agent isn’t working for you, he’s working for the seller.
The trouble is, buying agents in Britain are usually geared towards the top end. They also work on a percentage basis. So use one to buy a £1m house and you will be hit with a £25,000 bill on top of the pile you already have (stamp duty, legal fees, etc). The average buyer can’t cope with this. What they might be able to cope with is Pryor’s new service – Pocket Agent. It costs £180 a week and offers advice and help throughout the buying process – at a price everyone can understand.