Good financial services
What’s the problem?
Would you rather a good pair of shoes that fits you well and lasts for years, or a pair that hurts your feet and falls apart after a few weeks?
If only buying financial services were as easy. But unlike shoes, most financial products are complicated and – frankly – rather dull. Not many people can spot good value or easily tell if a financial product will meet their long-term needs. The fees and hidden risks of investment products, insurance policies and bank accounts seem ever more mysterious and complicated.
As long as financial firms see their primary purpose as selling products for profit, with no other considerations, this seems unlikely to change.
What’s so bad about that?
No one wants to pay over the odds for financial products. But how confident are you that you’re not over- or under-insured? Or both? What is your pension invested in? Is it underfunded? Do you know exactly what fees are coming out of your bank account and what your overdraft is?
When finance is more interested in extracting value from citizens and companies than in helping them, we all end up poorer. Perhaps this is most obvious in the landslide of mis-selling cases that regulators have found in the ten years since the crisis, behaviour that has cost households, small businesses, and local governments
What’s the alternative?
The alternative is to insist that financial firms offer a range of basic, low-cost, transparent products designed to meet the basic financial needs of consumers and companies. These should be based if possible on relationships rather than just ‘big data’ and should provide low cost access to payment systems and other essential services. They should have no hidden charges or costs, no secret data harvesting, and no features designed to exploit customers or push them into debt.
How will it help?
This would help by making finance more suited to our needs and make finance the servant of society. If financial instruments are sold to meet people’s needs and not to generate the maximum volume and profit for banks and other financial firms it might also make us less financialised.
What steps could we take to get started?
- Align asset manager incentives with the long-term interests of investors, including overhauling the “heads we win, tails you pay” fee system.
- Make sure that Environment Social and Governance (ESG) considerations are a part of investments’ firms duties towards their clients. Increase transparency by demanding ESG disclosure based on public evaluation models or taxonomies.
- Regulate all consumer finance, including pay day lenders and rent-to-own lending, caps on interest rates, etc. No more loan sharks!
- Citizens have a right to basic financial services, including digital payments with at least one state-backed provider as a backstop. Transparent, green, ethical accounts and services should be available to everyone, with unbiased advice.