By "...I`m taking two weeks off from painting to clean
the house up and sort out my financial affairs; like the dreadful endowments we
took out that have barely reached half their planned targets and the bloody
awful Pensions that have been eaten up by fees. And that fucking `Gan` policy they said was too big to fail .
Thieving bastards, I`m pooped already..."
A friend of mine writes a message on a social networking
web-page.
A quick phone call elicits that over the years, he has
been sold financial products that are not fit for purpose, are not suitable for
his needs, and are either diminishing in value, literally in front of his eyes
as the fees charged exceed the earnings, or have collapsed because the original
company has gone into bankruptcy and other product providers have stepped in
and taken over the residual investment fund. They, in turn have mismanaged the
fund as well, until there is virtually nothing left of the original investment,
which he was told was guaranteed against failure because of its association
with a major European investment fund!
My poor friend has been completely and utterly screwed by
the sly words and incomprehensible figures produced by the financial product
providers, so much so that he now has no relevant investment benefit to look
forward to after years of savings, despite adhering to the accepted norms of
every element of 'best practice' in the financial investment business, taking
independent advice, and being guided by professional advisers as to where to
invest his small capital nest-egg!
For many years, the ordinary British people have been the
sacrificial victims of the financial services industry. Unlike the USA, where
even working-class blue-collar workers will invest in securities, particularly
the shares of the company for whom they work, for the vast majority of British
people, the idea of buying stocks and shares, or engaging in the act of
'investing' for growth, was not something they did.
The tradition in the UK was that British working people,
wherever possible, 'saved' money, hence the popularity of mutually-owned
'building societies' or 'friendly societies'!
One of the most popular methods of saving was through
what were termed 'industrial policies', small savings accounts organised and
run by insurance companies, into which a working family could put a couple of
pence each week. This was 'saving' at a very fundamental level, but it was
undertaken for a most fundamental purpose, so that the person whose name was on
the policy could bury themselves with dignity. It was the alternative option to
being buried in a pauper's grave, at the expense of the Parish.
These were basic ways of putting money away for a rainy
day, and they did not involve a great deal of sophistication, and for many
years, they were all the market demanded in terms of providing financial
services for the poor, and the labouring classes.
The relationship between the City of London and the
working populace has always been a tenuous one. It was well known that the
ordinary man and woman had access to a significant amount of raw 'cash' which
the investment industry wanted to attract for investment purposes, and the City
of London had among its members, a large number of insurance companies who were
in a position to provide investment services. The real question was how to part
the man from his money (so to speak) and get it into the hands of the City.
Thus developed a generation of individuals who promenaded
around the hinterland between the City and the residential communities, men and
women whose role it was to sell insurance-backed investment services,
investment products which were designed and controlled through the insurance
market community.
We shall call these people 'Intermediaries'!
They have been defined as; "...An entity that acts
as the middleman between two parties in a financial transaction. While a
commercial bank is a typical financial intermediary, this category also
includes other financial institutions such as investment banks, insurance
companies, broker-dealers, mutual funds and pension funds..."
The primary and overriding function of the intermediary
was to put together people with money to lend, with people who wished to
borrow. The intermediary would be rewarded with a commission payment, usually
based upon the value of the amount borrowed.
The early intermediaries were professionals who acted
between fellow professionals, and were therefore deemed to be capable of
providing a good and adequate service to
their clients, all of whom knew the ways of the market.
However, all too quickly, the intermediaries became the
primary source of investment advice to a vast number of gullible investment
'virgins', ordinary men and women who were venturing, many for the first time,
into a financial market, looking for life assurance products, savings
facilities, pensions and above all, mortgages.
Suddenly, the financial professionals were dealing with a
group of people who had no financial knowledge or expertise whatsoever, and who
were literally being led like lambs to the proverbial slaughter in a financial
abattoir, from which only the product providers and the intermediaries stood to
make a killing!
Most financial products were very carefully designed and
calculated by their actuary architects to take the fullest advantage of the
existing laws regarding taxation allowances, interest rates, and inflation
rates. They were extremely complicated constructs and they needed a great deal
of financial knowledge to fully understand their ramifications, and very few of
their new clients possessed this knowledge.
In addition, what virtually none of these innocents
understood was that the financial sector had no rules or regulations in the
early days about what could and could not be said when it came to selling
financial products, the only rules which applied were 'caveat emptor'!
The intermediaries were happy to take their new market as
they found it, and without any exaggeration, they filled their boots with
commissions. Many of them became extremely wealthy from selling their clients
financial products which were expensive, and which did not provide value for
money. A few of them became spectacularly wealthy, literally millionaires,
continuing to make money from treating their clients like mushrooms, selling
them financial products which were not in their financial interests, but which
no doubt paid significant amounts of sales commission. Some of them, a few,
became household names and some, through a series of extremely dubious
practices and indeed, downright criminality, made so much money that they
became too big to jail!
So, certainly by 1986, the UK was confronted with a new
financial market which was ripe for the plucking. A new untried and untested
financial regulatory regime, a market competing aggressively for new
business, and a whole new potential
reservoir of clients, all anxious to spend the money they were making from
their new Yuppie jobs!
The only message was 'sell', 'sell', 'sell', and the army
of intermediaries did not need any encouragement to pile into the new
opportunities.
I was the Director of Enforcement and Investigations at
FIMBRA ( Financial Intermediaries, Managers and Brokers Regulatory Association)
for 2 years, the self-regulating organisation which was formed to regulate and
supervise the vast army of life assurance and pensions salesmen who wanted to
operate on a self-employed basis, as opposed to being employed as 'tied agents'
by a specific company of product providers.
This vast mass of financial intermediaries swarmed across
the landscape like a plague. They were on every street corner, in shops and
small offices. They gave themselves fancy titles, usually with the words
'Financial Services' in the title, and they existed to sell a wide variety of
financial products to all and sundry.
This was the important point. As self-employed
intermediaries, they were able to act as 'principals' in all contractual
matters. They could sell any financial product they wanted, and indeed, one of
their required functions as FIMBRA members was to give what was called 'best
advice'. This meant that they were required to undertake a full financial fact
find of their potential client's means and needs, and then to shop around,
using their skill and judgement, to find a product suitable for their client's
requirements.
Their duties were to act in the client's best interests,
and to subordinate their own interests in the process. Well, that was the legal
theory anyway! Their sales methods
relied heavily on amplifying the client's sense of guilt, pointing to pictures
of his loving wife and children and appealing to his emotions to think what
would happen to them if he were not around to provide for them? If, having identified
a product that would meet their client's financial needs, they then found
themselves conflicted with another product which would not be so suitable for
his requirements, but which paid a higher commission rate, then their legal
duty was clear. It was to think of the best interests of the client and to put
his interests first, regardless of the fact that they were going to earn less
commission.
And if you believe that is what happened, then no doubt
you still believe in the tooth fairy, and that the bogeyman lives in a hollow
log behind the municipal library!
My time at FIMBRA taught me that the financial
intermediaries, for the most part, were among the most unprincipled, and
financially insecure practitioners who ever had control of a client's funds. I
don't remember many of them walking through my office door when they had to
come and see me, most of them just slithered under it!
They flogged dodgy insurance endowment policies, which
paid fantastic commission rates, and which were supposed to run, in so many
cases, in tandem with a mortgage, so much so that all the time the client was
paying his annual premiums into the policy, he was saving to pay off the
capital of his principal sum borrowed, 'while gaining the benefit of life
cover' as it was always so neatly put!
I could not possibly work out the number of unwitting clients
who were bamboozled into an endowment policy insurance backed mortgage, but it
was huge. As a young police officer, I myself was one such because when I got
married, the Building Society refused me a mortgage loan on the basis that I
hadn't been saving with them long enough, but then introduced me to a mortgage
broker who just managed to organise a mortgage for me from the same Building
Society, coupled with an expensive Endowment Policy, on which he earned a huge
sum of commission.
I know, I know, I spent years trying to work out how that
particular piece of smoke and mirrors worked, until I realised that I had been
simply taken for a schmuck, along with hundreds of thousands of others.
Later, when I came to sell the house and move on, I was
told that the existing policy would not cover a new mortgage, and I would need
to buy another one. Yes, I know, gullible or what?
Another scam was what became known as 'All of Life' Policies
where insurance policies were sold to unsuspecting couples, in which the life
of the assured was covered until his death. The figures were so complicated
that it was not until some years after starting that the hapless investor
realised that his annual premiums were growing at exponential rates, indeed, in
so many cases, the product had to be cashed in before fruition because the
insured simply couldn't afford to pay the cost of the premiums. The insurance
companies had the benefit of literally 'free' cash for years before the likelihood of having to
pay out any benefits, and then the policies were cancelled before the bitter
end, literally a licence to print money.
This was followed by the great Pensions swindle when many
thousands of workers in occupational pension schemes offering final salary
pension benefits, were defrauded out of their original schemes, and encouraged
to invest in private 'portable' pensions. These were then raped by the pension
providers in terms of costs and fees, so much so that many pensioners ended up
with a small percentage of what they had saved. It was at this time that the
cruel misnomer 'mis-selling' was first coined.
Unit Trust savings schemes whereby the client's
investments (sometimes many thousands of pounds) were placed in the company's
bank accounts and never paid over to the Unit Trust company until 6 months
after the contracts were opened, leaving the client at huge risk in the event
of anything happening to the intermediary. One big company in the West of
England specialised in this form of swindle, but proved to be too big to jail
when an investigation proved what they had been doing!
Privatised share offerings proved irresistible to some of
the big players and some made big fees on supporting these new product
opportunities.
PPI insurance policies of course were just another of the
scams offered by the intermediaries, and the great problem was that they could
and did literally make up any lie or untruth, or misleading statement to give
credence to their activities. The difficulty was that until such time as the
policy did not pay off or mature in the way in which it was anticipated, no-one
could know that the original representations were not truthful.
In these and many other ways too awful to recount, the
British people have been routinely screwed and defrauded by the financial
salesmen who were so used to lying and misleading their clients, that telling
bloody great big untruths simply became a way of business.
This must help to explain why it was that a whole
generation of banksters and other financial salesmen found absolutely no difficulty
in defrauding customers of PPI policies, interest rate swaps, and other
financial products during the run-up to the financial crisis. They were so used
to telling lies and defrauding customers that it simply became second nature
for them to carry on as before. There was no moral obligation they felt
necessary to uphold, there was no ethical environment which made deceiving a
customer an anathema!
It amazes me now that anyone would willingly part with
their money to any financial intermediary or investment adviser. There is
simply no fair and honest market into which the small investor can place his
savings, without running the risk of being sold a pup. This should be a matter
of significant concern to the Government and the regulators because it means that
nowhere is safe for the investor and that means that more and more investors
will try and avoid the markets and those financial advisers who serve them. Oh,
I am sure there are a few out there who have principles and try to give their
clients a fair deal, but I am only really saying this because I don't want to
run the risk of receiving a tsunami of complaints from advisers complaining
that I have been unfair to them, and traduced their 'fine' reputations. I read
those letters before and I didn't believe them then, and I won't believe them
now!
I cannot believe that my friend is the only person who
has been routinely screwed by his experiences with the investment markets. The worst
thing is that he is a man who brings joy to other people's lives as a fine
artist, whose paintings are colourful and beautiful, and one of them hangs over
my desk. Sadly, this gentle, talented, artistic man is just one, I am
convinced, among many hundreds of thousands who have been parted from their
savings by unprincipled salesmen and women, unprincipled crooks who have
themselves lived a life of luxury, having stolen a great deal of money.
My years at FIMBRA were surreal ones, in the end I found
I couldn't stand the complicity and the complacency being demonstrated by those
whose jobs were supposed to be aimed at preventing the very scams we were
uncovering and then busily covering up. It was an awful time, and one for which
I still carry the scars, maybe a tale for another time.
After I left, a friend told me that in my absence, the
organisation had attracted a new name, and that FIMBRA was now routinely known
as 'Fuck It, My Broker's Run Away'.
X art by WB7
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