My Disrespect for Financial Services

Usually, my opinions have some balance. Logic and emotion have a place, and I can trace back where an opinion comes from. But I find I lose balance when considering the modern industry that is financial services, comprised of banks, analysts, advisors, hedge funds, traders, accountants and all the rest. Every time I hear a speech of a plan to punish or belittle these people, I inwardly cheer. This doesn’t happen with many other groups.

So I thought I had better work out why that is. And to do that, I tried to recall my experiences with this industry, to see why they led to such a visceral disrespect.

When I was growing up, financial services meant banks and accountants. Our local town had the major banks in the middle of the high street, all in the best locations. The bank manager was hidden behind layers of walls and staff, and my mum treated a visit there as like one to her doctor or priest or head teacher. He (it was always a he) was responsible for judging our character and standing in the town. He led the rotary club, golf club, round table, free masons, everything else.

Even as a child, I could see through this. At least the plus was that this character assessed loan risk using people assessment and not just business plans, and clearly had the customer’s welfare in mind as well as the banks. Good. But if ever there was an embodiment of conservative (small and big C) establishment and prejudice, this was it. Bank managers were posh people with rich parents and establishment attitudes, and supported people like themselves.

Since then, a lot has happened, most of it, unbelievably, for the worse. Nowadays, the whole industry is driven by its own greedy values, and customers are just suckers to be abused. Some examples are in order.

I was lucky enough to start banking at a time all the banks were offering very generous inducements to new customers. Like all my friends, we switched often to capture these special offers. The banks had just received some market research that a high proportion of customers never switched bank, and concluded that attracting new youngsters would give them a high lifetime value. Brilliant, except that their response killed their own golden egg by creating a generation of switchers.

I was mis-sold a mortgage, just like millions of others. I was clearly told that mortgage protection insurance was obligatory. Unfortunately, I could not recall account numbers or clear evidence to recover any money. But it still happened.

I was smart enough to miss out of the other great rip-off of the time, endowment mortgages. I could never see the point, and was proved right when the whole edifice collapsed.

Twice I had high interest savings accounts. When some crisis or other arrived, the interest was reduced to 0,001% overnight. Fair enough, but what was evil was that they omitted to inform me, and they stopped sending statements too.

Shell in the US started a promotion with a credit card company, whereby discounts on gasoline would be offered to people signing up for credit cards. The only problem was, most of the loyal Shell customers were rejected for cards, because, wait for it, their finances were too good. Card companies only want people who do not pay on time and build up debts. Their whole model is based on this. Have you wondered why nowadays paying by credit card is actually cheaper than cash, at least in the US? Why is 30% of our mail trying to get us to take up new credit cards? It is shameless, part of the conspiracy to drive us into unsustainable debt. My daughter is currently struggling to get a mortgage for much the same reason.

I cannot for the life of me open a bank account in the UK, since I do not have a residential address there, even though I am a British passport holder. Bank staff are defeated by their computers and the option menus. Only standard, low-cost customers are welcome. I am reduced to offshore or nothing.

Someone used to visit Shell expats trying to sell financial packages. The only true value they offered were some structures to evade tax. This value was far less than the exorbitant fees being charged, which were invariably hidden deep into the small print. All the shadiest, most dishonest, unpleasant sales people I have ever had the misfortune to meet have been in financial services.

For some years, my finances have been complicated by international factors. It is not a strategy, simply a consequence of moving around. I have no particular interest in optimization, merely in simplicity, common sense and being honest. Yet can I find anyone to advise me? Lots of advisors are happy to charge me handsomely to optimize tax within any one national regime, none across borders. One guy told me on the phone that I would never find anyone as it was far too complicated a challenge. I laughed, and quietly replied that I, the naïve customer, had no choice but to face up to the challenge.

Occasionally, I read articles trying to offer financial advice. Gradually, I learn that they are almost always full of rubbish. I have started buying shares over the last couple of years. So far, I have managed to beat the markets by a few percent. My secret (no doubt with a comeuppance in store someday): trade rarely, hold for the long term, rely on fundamentals. As an example, anyone can see that Easyjet has a winning business model while BA is a losing one, or that firms with some monopoly advantages serving older folk are likely to do well. This does not require genius, but such analysis is completely absent from financial pages, and seems to be enough to beat the market.

Conversely, whenever I have invested in managed funds or unit trusts, I have done worse than the market. Why? Simple. Their investment knowledge is similar to mine, but they have mountains of greedy staff requiring huge fees. Steer well clear, I say. Trust yourself, they are not so much smarter than you.

Increasingly, the only way they can be smarter than you or I is to cheat. What exactly is trading edge? I reckon it usually lies very close to the border of insider trading. The courts and other evidence seem to back up this hypothesis.

Enough personal examples? In every case, my experience is that the industry is stupid or unscrupulous. The people are the same: male, middle class, privileged. The job they do is one of the simplest on earth. It is much simpler than for the bank-managers of old, who were supposed to use judgement. Now they just look for suckers, type in numbers into computers, connect with their buddies on the edge of the law, take advantage of simple international arbitrage, and pay themselves vast fortunes. The ugly face of capitalism, where senior salaries bear no relation to reality, started with finance.

I should try to offer some balance. Actually, only in the UK is my experience so dire. The internet banking in Holland is wonderful. In Portugal I still receive an old fashioned personal service. And in the US, Chase have what seems an impressive system to control fraud.

So, what are the lessons from this rant? I can think of a few.

First, if you are starting out, be deeply suspicious of anything from the industry. Especially avoid inducements into debt, or claims of investments that will beat the market. In both cases, their only motivation is their fees, so give them none.

Next, don’t buy the PR sound bites about how brilliant these people are. They are important, as the world needs a financial system, but they are far from brilliant. Perhaps, if you are young, middle class, and motivated by money, you should join the circus yourself. Just try to avoid your own hype, maintain external activities to keep a moral compass, and jump out into something less parasitic once you have enough cash to earn a real life.

Next, don’t read any financial pages. Analyst reports are not bad, but are generally hard to get at. Buttonwood in the Economist is brilliant. You need nothing else.

Next, let us all lobby for the Tobin tax. There is no better win-win-win available to the world currently, and all the greedy monopolists know it.

Finally, if you find your blood pressure rising every time an industry is mentioned, it is a good plan to work out why. Then you can make some choices to avoid some of the things that annoy you, and you can learn to calmly laugh at yourself for some of the others. Staying away from the UK might be one idea.