9th August 2012
This piece in the Guardian spells out the problem:
"Five years on from what is considered the start of the credit crunch -dubbed "the day the world changed" by the former boss of Northern Rock- the public are more disillusioned with the banking sector than ever, a consumer group has claimed.
"Nearly three-quarters – 71% – of people surveyed by Which? do not think banks have learnt their lesson from the financial crisis, up from 61% in September last year."
Many commentors on the site went further: iainwyatt says: "The banks have put themselves first, devoting their efforts to ever more complex ways of ripping off their customers. The so-called "interest rate swap" scam – perpetrated on small businesses – was a particularly egregious example of their corporate thievery."
Everyone from financial advisers to insurers has been tarred with the same brush. Financial advisers are currently undergoing their most rigorous regulatory overhaul ever with the Retail Distribution Review (outlined here). They are also being asked to pay vast sums into the Financial Services Compensation Scheme to mop up the mistakes of groups such as Arch Cru and Keydata.
The result is that people would increasingly rather do their banking with non-financial services companies. This has had, according to the Association of Mortgage Intermediaries, the tacit support of the FSA- Robert Sinclair, chief executive of the Association of Mortgage Intermediaries (AMI), said in his blog that the regulator's decision on Tesco went against its current thinking and was unfair on firms like Castle Trust, who have had to ‘endure' a long approval process: "It might be within the rules but surely it is not within the principles of the regulator's current guidance and thinking. Our schizophrenic FSA does appear to have lost the plot. Surely in a world that is tied, non-advised should be a thing of the previous era."
His comments provoked a storm, mostly of agreement: John Morgan said: "Non-advised means no right to complain so the FSA wins on two counts – don't need to regulate the provider/supplier to the same extent and there will be no ability for the consumer to have grounds for an eligible complaint!" There is a danger that in seeking out non-financial services groups for financial services provision, consumers will be left with less protection.
It is widely thought that the Retail Distribution Review may narrow access to independent financial advice. While the regulatory changes are welcome to the extent that they promote higher qualifications for advisers and greater professionalism, the ending of commission means that smaller investors may no longer be able to access advice cost-effectively.
The advice sector itself admits to feeling ‘pilloried'. Dennis Hall of Yellowtail Financial Planning says: "We are pilloried all the time and I think it is that which sticks in the minds of consumers, and not the good outcomes we have been able to deliver [for clients]."
Part of the problem is that five years ago, it was possible to believe that the banking sector was simply having a hiccup: It had got carried away with the boom, paid a few too many bonuses, lent a bit too much money. In a cyclical economy, banks would simply learn a few lessons, reign in lending and stop paying ridiculous bonuses. It is difficult to draw that conclusion now in the face of repeated instances of institutionalised corruption.
However, it is difficult to draw the same conclusion about other parts of the financial services sector. The worst incidents of malpractice were not among independent financial advisers, but among quasi-product providers. Keydata, for example, sold structured products. Financial advisers within the banking sector (not independent) perpetrated the worst recent mis-selling scandals, such as payment protection insurance.
Too much of the financial services sector has been tarred with the same brush, to the extent that consumers may now seek out alternatives that are not necessarily as well protected by regulation. The banks have created widespread and unfair mistrust of the whole financial services sector.
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