OpinionDec 19 2014

Past habits are no defence for mistreating customers

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The greatest obstacle to progress is always habit.

“It’s the way that it’s always been done” does not and should not mean that it will always be the way it is done. But that phrase is used to defend a multitude of sins, probably because it is easier than thinking about what we are doing and finding things we could do better.

Identifying and implementing better ways of doing things just involves too much effort. If we don’t even bother to entertain the possibility of improving things, it ensures all of our lives stay easy, doesn’t it?

Taken at its hyperbolic extreme, that phrase alone would have prevented any development in any sphere of human endeavour or culture.

There was a time when those things that we had always done would have included ducking witches, bear baiting or being paid for advice through commission. All of these have gone the same way. It’s all part of what we call ‘progress’.

But there remain practices that we – as an industry – persist with, the only justification for which is that we have always done them. Received wisdom says we carry on doing them regardless, even though a tiny amount of scrutiny would expose fallacies.

A couple of months ago we ran a story about Ian Taplin, a whistleblower, hoping to take Lloyds Banking Group to task for alleged segmentation of its advised clients according to their individual wealth. Mr Talpin claimed the result of this practice was that lower value clients could end up paying almost £20,000 more for critical illness cover over the life of a typical 25-year decreasing term policy.

When the story appeared online, the comments underneath were largely predictable. A lot of readers questioned the value of the story, on the basis that – yes – this is just the way things are done. To quote just three, “I believe that this was common practice across all the major banks”, “is that not the way that virtually every bank has operated for many years?” and “segmentation is business.”

Almost all of these comments acknowledged the inherent iniquity, but still suggested actually doing anything about it was a “waste of time and money”. As if the principle of Treating Customers Fairly, the key tenet underpinning financial advice regulation, should not apply to those whose assets fell under an arbitrary threshold.

And anyway, since when has the way banks operate been the benchmark by which we decide what is the accepted standard in an advice model?

The system that Mr Taplin alleges is inherently unfair. Even those that defend it acknowledge it. But doing anything to change it is too much effort and cost. Even the regulator apparently agrees, refusing to look into it when Mr Taplin previously raised the issue.

The resulting compensation could bring a banking sector – that has yet to recover from the last however many scandals – to its knees but, even if the fallout brings problems and challenges, shouldn’t the over-riding principle be to protect the consumer rather than the banks?

Elsewhere adviser platforms clamour to secure preferential rates for the most popular funds from the biggest name providers. Shaving a bip off the cost is worn as a badge of honour as huge parts of the industry vie to differentiate themselves on price rather than value.

But the end consumer gets no say in which platform their adviser uses. So one investor will end up paying more than another for the same fund purely because his adviser is using a different platform. Then, once they’ve accessed the funds, transferring between platforms becomes a logistical nightmare as clunky tech has its job made harder by inconsistencies that make the whole process more arduous than it needs to be.

The argument about how many platforms an adviser needs to use to be independent has gone beyond boring, but the logical conclusion of this practice is that every independent adviser would need to use every available platform to ensure their clients were getting the best rate for everything. Anything less is hardly treating them ‘Fairly’.

Of course, until recently, those who retired had a similar lack of choice. Those with enough in their pot could opt for drawdown, while the less well-off masses were shovelled into annuity products which had been rendered anachronistic through a failure to adapt to increasing longevity.

With the notable exception of annuity specialists, the industry as a whole has welcomed these ideas. So why can’t this readiness to ditch the way things have always been done be applied to other areas?

I would like to see the same enthusiasm with which we have all embraced pension changes manifest itself in all areas of retail personal finance. And maybe we could use that enthusiasm to prompt change, rather than just react to it.