Last week I wrote a blog summing up my thoughts on Greg Smith's resignation from Goldman Sachs.
I wasn’t the only one. The reaction to the NY Times piece was pretty impressive. Lots of people had plenty to say. It was mostly very supportive of Mr Smith as mine was (with the exception of Goldman Sachs).
Hold on a minute
Since the initial fervour has passed, I’ve thought about it for a bit longer.
- Is everyone right?
- Is it really as bad as it seems?
- Are financial institutions really the vicious wolves hunting in amongst the investment sheep, pretending to be taking care of them, whilst actually looking to pick out the weakest and most vulnerable victims?
I’m going to extend the metaphor from my last blog (re: dentistry).
‘When I go the dentist, it’s because I think I need to get someone to review my dental circumstances and make dental recommendations which will fulfil my dental needs’.
As it happens, I don’t really like going to the dentist. I hope for a clean bill of dental health. Maybe I’ll get away with a polish. Perhaps even a small filling in that tooth at the back which hurts a bit when I eat ice-cream.
But what if the dentist recommended that I have a complicated and expensive procedure which should eventually provide me with a fantastic set of teeth? The process potentially involves several of his colleagues, multiple meetings and a requirement to review extensive technical & sales disclosure documentation (which I don’t really understand as I’m not in dentistry). Following this I need to sign to acknowledge I’m alright with it all.
Maybe there is a bit of hyperbole here. But basically, it is about choices.
In the above scenario, I essentially have two options:
- ‘Thanks very much. Those new teeth you’ve described sound amazing, no matter the cost or risk. Sign me up. I’ll happily take your word for it’; or
- 'Whoah there cowboy. You want me to do what? It’ll cost what? …. thank you for your opinion, but to be honest I don’t understand a word of what you are talking about and I’m therefore not prepared to be involved in this arrangement. Have a good day, bye’.
In the UK, the following principle has historically applied:
Caveat emptor – ‘let the buyer beware’
Although this is still in use, there has evolved a much more robust regulatory oversight in terms of sales of financial products. There surely must be some whiff of personal responsibility remaining though, shouldn’t there ?
Maybe it’s me that’s the strange one. Maybe I’m cynical from 15 years in financial services. But if somebody wanted to sell me something that I really didn’t understand the need for, or why it was suitable for me, then I don’t think I would, or should, buy it.
This is of course easy for me to say and may be more difficult in practice - particularly if it relates to something to do with your business or appears to be necessary (see recent UK story on Barclays Bank selling ‘swaps’ contracts to small businesses – something which has prompted an FSA investigation and apparently included confidentiality clauses.
So was I right?
I can see both points of view. Companies need better controls and to take more responsibility; and customers need to ask more questions. So I kind of agree with myself (which is good news for me I suppose).
Every transaction involves some degree of trust and good faith, along with an element of caveat emptor.
Ultimately it needs people working with one other, rather than against each other.
I’m off to the dentists now. Wish me luck.