John Ellis's article on ethics raises some interesting and thought-provoking issues.
To “teach” ethics to adults seems to be very much like closing the stable door, etc. If the difference between right and wrong is not apparent by the time a person becomes an adviser (at least early 20s), then it never will be.
The biggest possible financial gain and the morally most reprehensible has always been achieved by pinching what belongs to someone else. When this process is concealed in the guise of giving professional advice, it is almost as wicked as the abusive priest or the negligent surgeon as the victim implicitly trusts the perpetrator.
Incidentally, in both the above analogies, the people in ultimate authority and control of the situations seem to do precious little about it until it is too late. Is there a parallel in financial services?
Most, if not all, abuses, pension misselling, endowment mortgage misselling, bond churning, selling protection as savings, rewriting instead of renewing pensions, selling annual pension contributions when annual/single mixtures were of greater client benefit, are all in the realm of commission-chasing. But, and here is the unanswered ques-tion, who was in charge of all this? Any sales director in charge of a few hundred or even thousands of salespeople will know that there are a few bad apples. Clients, if they have trusted the adviser completely, will be urged to “ignore the paperwork” so all the compliance in the world will not eradicate these practices.
Yet, in the days when these practices were rife, where was the ultimate control? You can't run a paper clip factory without quality control but how many providers ever took a random client file and checked it for suitability or honesty? If a broker (remember them) was the source, the provider denied any responsibility. In the case of tied salespeople, the small fry got the sack and big producers held a gun at the providers and the providers just did not dare do it.
It is worth remembering that for every “bent” adviser, there was a provider willing to take the business.
Where did the impetus come from to open estate agencies (endowment magnets), switch/rebate pensions, create products with ever higher commissions (and penalties and charges)? Certainly not from the advisers.
Of course, the vast majority of advisers are honest and do not need lessons in ethics but the last 15 years have been dominated by the mayhem caused by the few and my contention is that product providers could have done a great deal more to eradicate the problems before they were forced to. Everyone has paid the price by over-regulation and the ever-increasing savings gap fuelled by distrust of the industry.
The law of the land is supposed to protect the poor and punish the wrongdoer. So where are they and has anyone ever been punished?
Or maybe the poachers become gamekeepers and end up as regulators.
To bring the debate right up to date, it is like the child porn internet argument. If it has to be paid for, then a market is created and, yes, the voyeurs are guilty but, as all payments are by credit card, the banks could easily remove the facilities from known providers and kill the industry overnight. So, should banks adopt an ethical position in respect of their vast earnings from this kind of activity?