One of the interesting aspects of the Lloyds Bank ban on customers using their credit cards to buy bitcoin this month has been the reaction.
While some applauded the move, many felt Lloyds' action was just another symptom of a growing nanny-state. In short, people should make their own mistakes.
My view is simply this: you should not borrow to gamble. Is buying bitcoin a gamble? I cannot see how it is anything but. Fans of crypto-currencies are quick to praise its potential, but it is the blockchain technology than underpins it that has the potential. Crypto-currencies themselves simply appear to be unregulated investments set up by shadowy figures.
For example, no-one knows who Satoshi Nakamoto – the supposed creator of bitcoin – is, or if he even exists.
But the whole controversy raised the question of responsibility when it comes to people’s money. Should Lloyds Bank be responsible for protecting consumers? Why should it not be? The financial adviser industry has long been blamed for clients’ financial cock-ups. And that is right. When a person turns to someone else for professional help, they should be able to rely on that help.
By the same token financial advisers must be happy to accept responsibility for what happens when clients follow their advice. Fact finds are a great way to establish a client’s attitude to risk and ensure that whatever advice eventually offered is appropriate.
These days, of course, there is a whole regulated process to ensure the advice given is right. Advisers cannot offer a client a cup of tea without filling in a form in triplicate reporting the fact.
I can imagine the extra work required to ensure advisers applied for the right permissions ahead of Mifid II coming into force last month. But beyond the pain of the red tape, everyone must agree that it is right that advisers account properly for their advice. All the mis-selling scandals of the past couple of decades have been linked to dodgy advice, so having the paper or email trail is essential to show advisers have acted honestly and honourably.
Apart from anything else, it helps to ensure that potential clients have some confidence in an adviser’s honesty and integrity.
Back to those mis-selling scandals. The biggest historic mis-selling scandal to hit the UK financial services industry was the wide-scale flogging of useless and expensive payment protection insurance policies. The compensation bill for that is still rising, but is about the £40bn mark.
Banks were responsible for that, but do you know which bank has had to pay out the most compensation to customers who were mis-sold PPI? The answer is Lloyds Bank. It has so far had to stump up more than £18bn to people who were misled and who ended up paying a packet for the dodgy insurance that most of them would never have been able to claim against.