The chairman of Scam discusses managing gifts and entertainment over a self-funded pint of Customers’ Best Interest.
“So have you seen any increase in your industry-based invitations in the wake of last week’s pitiful display of shameless whinging?” asked the chairman of the implausibly-sized investment company Second Coming Asset Management as we each enjoyed a self-funded pint of Customers’ Best Interest at The Application Of Limited Thinking.
“As I believe I made perfectly clear at the time, I am completely comfortable with the invitations I currently receive,” I replied. “What is more, I wholly accept the amount is in direct proportion to my existing so-called journalistic status and, as a final note, I would re-stress I was merely outlining the invitational cycle of the average financial hack to enlighten you on how things are.”
“So that’s a ‘no’, then,” said the chairman. “OK,” I said. “Let’s stick with the subject of corporate hospitality within Her Majesty’s financial services industry but switch focus on those being hospitalised. Am I to infer from your insistence we buy our own drinks you were a lucky recipient of one of the FSA’s latest batch of ‘Dear CEO’ letters?”
“Maybe,” replied the chairman. “So that’s a ‘yes’, then,” I said. “I must admit, when I tracked down the FSA’s research,Conflicts of interest between asset managers and their customers, I found myself immediately drawn to the disappointingly short chapter entitled ‘How firms managed gifts and entertainment’.
“The FSA felt ‘firms had not taken care to consider whether the value and frequency of gifts and entertainment would give rise to actual or perceived conflicts of interest’ and were concerned to find most firms it visited ‘applied limited thinking to how accepting gifts and entertainment could compromise their duty to act in their customers’ best interests.
“Apparently many firms ‘set their policies simply by reference to market practices’, which I’m guessing is a bad thing. There were then a number of examples of occasionally terrifying corporate policies that contained controls over gifts and entertainment practices but absolutely no examples –again disappointingly – of policies the FSA did not feel to be quite so thorough.
“Incidentally, I’m assuming Scam’s did not feature among the exemplary ones.” “You know very well our policy on accepting gifts and entertainment because it has not changed in decades, has served us very well over that time and, if you remember, is identical to your own,” said the chairman. “We maintain our own hard-won objectivity by accepting freebies from absolutely everybody.”
“I don’t know what you’re talking about,” I lied. “Anyway, the FSA concluded most of the firms it visited ‘could not demonstrate customers avoid inappropriate costs and have fair access to all suitable investment opportunities’.” “Oh come on,” sighed the chairman. “Any firm able to demonstrate all that would have to have Professor Stephen Hawking moonlighting in compliance.
“Either that or Joseph Goebbels in its PR department. You know, if the FSA is so jolly keen on us demonstrating stuff to it, there are a few things I wouldn’t mind …” “It’s interesting you feel that way,” I interrupted quickly. “Because the FSA reckoned the attitude towards customers established by senior management best explained why some firms managed conflicts well and others badly.
“It felt ‘a few boards had defined and embedded in their business a credible, long-term commitment to serve their customers’ best interests and had established robust arrangements to identify and manage existing and new conflicts of interest’. However, in most cases, senior management failed to show the regulator ‘they understood and communicated this sense of duty to customers’.
“In fact senior management failed even to show ‘they had reviewed or updated their arrangements for conflicts management since 2007’.” “2007?” snorted the chairman. “They wish.” “Apparently in these firms,” I ploughed on, “employees ‘too often lacked awareness of situations where short-term business goals conflicted with the long-term interests of customers’.”
“One hardly knows where to start there,” the chairman sighed again. “OK, here’s a fun fact – were you aware, according to the FT by way of FE, the average annual turnover for UK open-ended funds was 90 per cent in the year to February 2009, up from 50 per cent the year before and 30 per cent the year before that? I’m afraid the investment short termism ship sailed really quite some time ago.”