At a recent workshop of the South African Savings Institute (Sasi), the lack of trust in the financial services industry was identified as one of the factors that is contributing to the country's low rate of saving.
And what makes the problem even worse is that the financial services industry, particularly the life assurance industry, has too little appreciation of ethics and morality.
It is amazing that so many big com-panies continue to misbehave and seem to have no idea of what constitutes proper behaviour.
It is also amazing how often, when Personal Finance points out these lapses in ethical behaviour, we are accused of bias or worse, or are presented with the argument that the company must behave unethically because others are doing so. In other words, if the car in front of me jumps the red light, it is okay for me to do likewise.
I agree that Personal Finance is biased. It is firmly biased in favour of consumers and against people and companies that behave unethically or without sound morals.
Ethics and morality are issues that Charles Pillai, the former financial advice ombud and the current Pension Funds Adjudicator, raises repeatedly. Pillai emphasises that it is not companies per se that are unethical; it is the people who run the companies who are unethical.
They are the people who appoint or instruct others, or who spend their time attempting to find loopholes in the law so they can exploit consumers.
And it all becomes a nasty downhill slide, with more legislation and regulation required, which the armies of lawyers then go to work on, finding new loopholes.
The reason for unethical behaviour, Pillai says correctly, is corporate and executive greed.
And the problem is that, in the end, public trust in the industry is undermined. This, in turn, means that people save less and do not have the right amount of life assurance - to their own detriment.
The life industry is fond of stating that it has to treat its sales force with kid gloves because assurance products "are sold, not bought". Have these executives ever stopped to think why life assurance must be "sold"?
The reason is that the industry is not trusted. Research presented to the Sasi workshop by Professor Deon Tustin, the executive research|director at the University of South Africa's Bureau of Market Research, bears out this distrust of the industry by consumers.
Changing corporate culture
But it is ever so easy to turn the situation around. Take Alexander Forbes, which, for many years, was involved in scandal after scandal, bedevilled by the horrifying greed of its senior executives. Tentative efforts, in the face of increasingly hostile publicity and regulator intervention, were made to put it right.
But it took the new chief executive, Edward Kieswetter, to come in and in effect say: put right what was wrong in the past and do the right thing now and forever - namely, put consumers first. He changed the culture of Alexander Forbes in one minute.
It takes that kind of commitment. And once consumers see that commitment, so trust in an organisation or industry will grow, as will the quality of business and profits.
In his presentation on ethics, Pillai quoted a Canadian law professor, Joel Bachan, as saying: "As a psychotic creature, the corporation can neither recognise nor act upon moral reasons to refrain from hurting others. Nothing in its legal make-up limits what it can do to others in pursuit of its selfish ends, and it is compelled to cause harm when the benefits of doing so outweigh the costs.
"Only pragmatic concern for its own interest and the law of the land constrain the corporation's predatory instincts, and often that is not enough to stop it from destroying lives, damaging communities and endangering the planet as a whole."
Pillai says ethics are a set of moral principles that govern society; they are about individuals making moral choices in the best interests of the|people around them. He believes that the lack of corporate ethics lies with "the business leader, the company director, the chief executive, the chief financial officer and the auditor of the company, who need to lead through example by stepping up to the corporate plate".
And when it comes to the financial services industry, the list includes financial advisers, trustees and administrators, as well as marketers of financial services and products.
What is worrying is when com-panies pay lip service to being|consumer-centric but seem to have no idea that they are acting unethically.
I would suggest that the executive team of every financial services company obtains two things:
- A copy of Pillai's presentation; and
- The draft document on Treating Customers Fairly (TCF), through which the regulators hope to overcome the culture of non-compliance with both the letter and the spirit of the law.
If TCF is accepted, it will change regulation from being rules-based to being principles-based. To put it crudely, instead of the financial services industry interpreting laws to suit itself, the regulators will decide whether any behaviour is good or bad, and they will punish unacceptable and unethical behaviour.
- Next week: some companies|that need to up their game.