The financial services industry is a hugely complex web of organisations, products and regulations. Given how central financial services is to society, trust in the industry is absolutely vital. However, it’s very clear that after much-publicised scandals and the global financial crisis, many people have lost trust in our industry. Indeed according to Edelman’s 2019 Trust Barometer financial services is the least trusted industry sector.
Improving transparency is one of key ways we can rebuild trust. There are many initiatives to try to improve different elements of transparency in our industry, including the FCA’s MIFIID II regulations, and the Pension and Lifetime Savings Associate’s Cost Transparency Initiative. Of course at AMX we are using technology to help standardise the institutional investment process, and reduce many of the inefficiencies that exist today.
Increasing transparency across the whole industry is no easy feat, so it was inspiring last week to be surrounded by people who are attempting just that, at the Transparency Taskforce Conference on “How to accelerate the rebuilding of trust and confidence in financial services?”.
It was a fascinating event with some impressive speakers. Here are my 5 key takeaways:
- Capturing value for investors is complex – for example Sander Eijkenduijn from Scorpeo shared how $1 billion a year is a lost just on elective corporate actions such as scrip dividends, where asset managers often fail to capture value by incorrectly selecting the option to take cash vs shares (or vice versa).
- “The great tragedy of CSR” – Matthew Taylor, CEO of RSA, spoke about how the growth of corporate social responsibility has coincided with the growing distrust of capitalism and big business. This is largely due to the opposing priorities of the shareholder agenda and CSR, where there is conflict over what should take precedence. Matthew argued that in order to successfully embrace transparency, organisations must be able to talk about the dilemmas they face, and be frank about the complexity of running a large business today.
- Using the fee model to align manager and investor interests – Dan Brocklebank from Orbis Investments made a persuasive case for structuring fees so the manager only wins when the client wins.
- Transparency alone isn’t enough – JUST Pensions and Ignition House highlighted data from their 2018 survey . Aside from the complete lack of trust in the financial services sector, they found that there was no understanding of the difference between a DB and DC scheme. So for instance, when consuming news about DB pensions they didn’t realise the information didn’t apply to them. We need to be transparent, but we also need to communicate in a way that will be understood by people outside our industry.
- Putting the service into financial services – Baroness Ros Altman highlighted the need to think about our industry in terms of relationships, and the services we offer. It sounds simple, but the better our service, the greater trust we will build.
The conference was an inspiring event. Thanks to everyone who contributed to make it happen. My colleagues and I at AMX look forward to getting involved in some of the special interest groups, and to attending future events.
Transparency Taskforce is a community organisation with over 300 volunteers in 18 countries working to make our industry more transparent. You can find out more about them and how to get involved at www.transparencytaskforce.org.