The finance industry, said Aberdeen Asset Management veteran Hugh Young when I interviewed him recently, is essentially “venal”. Sometimes people (usually senior bankers) try to persuade me this isn’t so – that they care for the community, for ethical behaviour and for social cohesion as much as for money. But it is never long before something happens to remind me that finance really is just that bit more corruptly mercenary than most industries.
One example surfaced in Jonathan Eley’s column in the Financial Times last weekend. Regular readers will know that we have been pleased to see most of the big fund managers produce ‘RDR-ready’ versions of their fund charges. In the past, all fund managers have contributed towards the corruption of the advice industry by paying commission to advisers (both up front and as ‘trail’ commission) who manage to flog their products to clients. The regulator’s Retail Distribution Review rules ban this from next year, so RDR-ready essentially just means “with soon-to-be-illegal commission payments stripped out”. The result? Funds that charge management fees of more like 0.5%-0.75% a year than the usual 1.5%.
You might think this sounds good. Being able to buy no-trail funds via the likes of Hargreaves Lansdown for a low one-off fee seems to me the way the industry should be going. Sadly, the industry doesn’t seem to agree. If you want to buy these funds you have to buy via a financial adviser, and pay a fee for advice rather than just a fee for execution. That’s progress in a way. But it doesn’t make RDR-ready funds quite as modern and cheap as their managers like to suggest.
Still, the rapacious nature of the fund sales industry is nothing next to that of retail banking. We all know that most branch staff are effectively bank salesmen. But the Daily Mail this week details just how much pressure is put on staff to sell, rather than advise, at Lloyds TSB: “Four in ten customer-facing staff earn extra payments if customers are persuaded to buy additional financial products.” It works on a points system, whereby staff get more points for selling some products than others – presumably the more profitable the product, the more points it earns. Selling a premium paid-for current account earns 200 points. A free one, 30. An investment product referral gets 500, and one for getting someone to take on an extra £1,000 of loans gets 55, suggesting staff are “encouraged to egg on customers to borrow more than asked for”.
It is worth remembering this and keeping your wits about you should you still have an account with any of Britain’s high-street banks. Or, of course, you can move banks.