'The client is a cash cow'

A few weeks ago I interviewed Angus Tulloch of First State. Angus is an excellent manager with a long history of impressive investment performance. He's also, as he puts it himself, an Asiaphile, and is sure that over the long term anyone invested in the Asia Pacific region will end up pleased with the result. We talked about how that might or might not happen, and I've edited it down for you here. I hope you find it interesting.

One thing we discussed that I didn't put in the transcript was the nature of the financial services industry's responsibilities towards the general public both moral and financial. First State has its managers adhere to their own Hippocratic Oath for asset managers. This includes such promises as "I will treat my clients at all times as I would wish to be treated"; "I will not forget in my search for returns that the primary risk faced by my clients is losing their capital"; and "I will not allow the pursuit of personal gain to cloud my fiduciary role." It is simple stuff. But seeing it written down so clearly is a nasty reminder of just how few financial institutions adhere to any kind of socially acceptable behaviour when it comes to their clients.

Look at the cash Isa business, currently the subject of a "super complaint" from Consumer Focus to the Office of Fair Trading. We've been complaining for a long time about the tricks used to cheat consum-ers out of reasonable rates of interest. There are the "bait and switch" tactics where we get reeled in on a high or "bonus" rate only to find it collapse to all but nothing when we've stopped concentrating (the average rate on a cash Isa is 0.41%). Or the lack of transparency that can make it hard even to find out what rate you're getting paid. And, most irritating of all, the way that even the best buy rates for easy-access and fixed-rate Isas are all slightly lower than those on best-buy taxed accounts. As The Times points out, the banks offer slightly lower rates on cash Isas "because they know that customers will still choose the Isa". Once the tax break is taken into account they'll still be better off, so why wouldn't they?

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The banks' response is simply to say that if clients want to move their money they should. "We would always encourage customers to shop around," says the British Bankers' Association. But it's not that simple. It can take 30 days or more to move an Isa and the banks appear to go out of their way to make it as tedious as possible. Anyone planning to vote with their feet generally needs to do an awful a lot of kicking along the way.

This problem goes way beyond cash Isas. It is symptomatic of the way the financial industry views its clients. First State may be hoping it can treat its clients as it would like to be treated. But most of the rest of the industry clearly couldn't care less about them or their capital: instead it is almost entirely occupied with looking out for ways to rip them off.