Transparent, simple and honest – why is it so hard to find a firm that’s all three?
As Wonga demonstrates, it isn’t easy identifying firms in the financial services sector that are not just simple in their businesses and transparent in their charges, but honest too.
I spoke early this morning at the BNY Mellon Executive Woman's Symposium. The theme was Trust, Transparency and Technology, and just before the event kicked off someone asked me where I think trust in the financial services industry is at the moment. Rock bottom, I said.
I then talked at some length about why that is (no mystery really) and how I thought it might be possible to drag trust back into the business (a focus on transparency and simplicity). Then I pointed to a few models that consumers appear to like.
One example is Terry Smith's Fundsmith. It is simple (he promises "No performance fees. No initial fees. No redemption fees. No overtrading. No leverage. No shorting. No hedging. No derivatives. No over diversification. No closet indexing. No lack of conviction") and it is pretty transparent (the management fee is 1% and there isn't much else in the way of charges). That's why he has £2bn in his main fund and raised nearly £200m for his Asian investment trust this week.
I also mentioned Wonga. You might not like its model, I said, but take a look at the website. The main information is in pounds and pence. Want £200 for a week? That will cost you £19.89. Want £400? That'll be £33.89. Miss a payment? £30. Wonga is shockingly expensive, I said. But it is also delightfully clear: 98% of users say it is "easy to use". And there are a million of them.
By the middle of the morning I was rather wishing I had used one a better example. My point was not that Wonga showed much sign of being more honest than any other organisation just that customers like the certainty that come with pound and pence charges.
But nonetheless the fact that Wonga has just been ordered to pay £2.6m in compensation for sending fake legal letters (fake in that they just made up the name of legal firms and popped them on letter heads) to people behind on their loan repayments and fees between October 2008 and November 2010 makes them rather more fraudsters than paragons of transparency, and rather ruins the case.
Wonga is also having to pay some 200,000 customers compensation after a "system error" resulted in them being asked to over pay for their loans over a period of several years. Wonga's misconduct, said Clive Adamson of the FCA, was "very serious."
It isn't easy identifying firms in the financial services sector that are not just simple in their businesses and transparent in their charges but honest too. Anyone with any other ideas for my next talk on the matter feel free to pop them in the space below.