View more on these topics

Profit of doom

Success breeds contempt while the unprofitable and inefficient wins favour

Ever since I can remember, it has not been fashionable in the UK to make profits. True, there may have been a brief period in the 1980s when there was some merit in profit but even that was scorned by the image of a go-go yuppie in his Porsche which everyone seemed to hate.

We are a funny old race. Even as long ago as the 1960s, we seemed to revel in the downfall of success. Jim Slater almost certainly started the trend of putting major companies in order when he informed the boards that they did not own the companies – the shareholders did. He was always cast as the villain.

It annoys me intensely when the media take delight in telling us how obscene a profit BP makes every second. We hear of the success of Tesco – 30p in every grocery pound spent there – but commentators do not leave it at that as they always have to add how much nasty, horrible, filthy profit they make as well.

I think the hate of profit and success is so inbuilt in the British psyche that it perpetrates all walks of life, even to the extent that everything favours the unprofitable and inefficient. Politically, it seems essential to denigrate success.

In our own wonderful industry, the force and vindictiveness of regulation is proportional to success. Successful, profitable companies are fined for mistakes which they could have simply afforded to put right by introducing the systems to stop it going wrong again and treating their clients very fairly.

Major national brokerages which have never made a profit, are short of cash, desperate for commission and probably prone to mistakes are allowed to trade on while breaching capital-adequacy rules.

If you are unprofitable and you have made a really serious mistake and missold huge numbers of pensions or precipice bonds, you can put all the liabilities down to a subsidiary and walk away. Even a public company with an autocratic, dictatorial, incapable boss can get away with these ruses, provided the company is not profitable.

The companies are allowed to carry on trading unprofitably, risking breach-ing all sorts of regulations. One IFA sold inappropriate whole-of-life policies (stuffed full of commission) as a retirement savings plan even after they had been warned by the FSA. The fine of 425,000 was waived. So, what should we do in this industry? Well, we ought to pay ourselves considerably more salaries and waste the profits we make – it seems to work.

The regulator should take comfort with firms that make an honest profit because you can be pretty sure they do not need to rip off their clients and, if anything does go wrong, they can afford to put it right. It seems a pity that the reward for profit is more rigorous scrutiny and vindictive penalties.

I obviously have some sympathy with a penalty system which does deter. I suppose there should be some element of ability to pay in the various deliberations. But foremost should be a penalty system where the punishment fits the crime. You cannot let a beggar off for killing someone while for the same crime you hang a rich man.

It seems to me that if you are a beggar in this industry, you walk away scot-free every time. There does not seem to be any great incentive to retain profits and make our businesses financially strong. The trouble is that some of these lame-duck businesses are so complex and would take so much time to sort out that no one will make the decision.

What I want to know is how have they been allowed to get into such a size and state?

Well, it is the good old life companies that have been chucking in a few quid here and a few quid there supporting them. Perhaps that is where the guilt should reside – very unjust indeed but no less just than allowing these monsters to trade while insolvent. Let the companies that financially propped them up sort out the mess.


A-day action

Standard Life head of pensions policy John Lawson says that with A-Day just weeks away, taking stock of pension plans now will reap rewards later. The rules are simple but making the transition will be complex, which is where advisers come in

Resolution foundation meets today

The Resolution Foundation is holding its first conference today to discuss its research on access to financial advice for those excluded by poverty. The foundation is chaired by Resolution Insurance chief executive Clive Cowdery, while speakers today include Pensions Minister Stephen Timms, Clive Briault of the FSA, Baroness Sally Greengross and Mick McAteer of Which. […]

Canada Life rejigs group protection

Canada Life is changing its group income protection products by simplifying the maximum benefit formula, improving free cover limits and removing HIV/Aids exclusions.


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers. Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and thought leadership.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm