The building society industry and its guests gathered for the BSA's annual lunch recently. Unsurprisingly much of the talk around the tables centred on mortgage regulation, Basle, Miles and the Treasury Review of FSMA. Given the huge number of issues the industry is facing, guest speaker John McFall MP, chairman of the Treasury Select Committee, had plenty of material for his speech.
McFall started off with a good joke following the appearance of Barclays boss Matt Barrett – noting that Barrett left the committee smiling, wrote a note to all employees the next day and left the office early on the Friday. McFall suggested that appearing in front of the committee would lift one's spirits, improve employee communications and guarantee a long weekend. However, having seen the grilling his committee gave Treasury civil servants last week, I am not so sure all witnesses would agree.
The Treasury Select Committee is influential and renowned for not giving those appearing before it an easy ride. What was clear from the start of McFall's speech was that the committee will always take the consumer's point of view.
McFall was his typical forthright self on the current inquiry into credit cards, stating that he has not been impressed by what he has heard so far. The issues of transparency and consumer understanding have not properly been addressed and people do not yet realise it is an expensive form of borrowing.
Financial exclusion was the hot topic of the financial services sector a couple of years ago. Following the publication of a Treasury report on the issue, much has been done to improve the situation. Therefore news that the Select Committee will look again at the issue is welcome as recognition of the work that has been undertaken in this area would be timely.
The latest buzz topic of the sector – financial education – also came up in the speech with a clear statement that there is inadequate financial literacy in the population at large. The MP felt that part of the solution is to deliver more financial education through schools but cited the Consumers' Association's pessimistic view that financial education will take a generation to have any effect.
Interestingly McFall felt the industry couldn't meet the financial advice needs of all consumers. He raised the possibility of a network of financial advisers working through charities, trade unions and Citizen's Advice Bureaux. This is not a new concept but the fact that the chairman of the Treasury Select Committee has raised it again suggests that the idea is moving up the political ladder as a means of delivering generic advice. For those delivering advice to consumers, this debate is coming and it is worth considering how you are going to contribute to it.
Savings were also pre-occupying the chairman, who believes that high charges and the mis-selling of products such as endowment mortgages and precipice bonds have eroded confidence in long-term savings. The committee is examining the shortfall in take-up and has called on building societies and banks to pass on interest rate rises in a responsible way.
Trust was another big theme of the speech. Trust has been eroded to the point that it can no longer be taken for granted. In a world that has seen the likes of Enron, Worldcom and – closer to home – Equitable Life, people no longer trust financial services. The recent media exposé on the selling of self-cert mortgages was cited as another example of underhand tactics. McFall suggested that the failure of firms and senior management to learn the lessons of past mis-selling is a major contributing factor to this level of consumer cynicism.
He went on to suggest that the only way to restore trust is by collective action. As an industry we have to demonstrate that we are on the consumer's side and firms that do this will gain competitive advantage, he said.
It would, of course, be remiss when addressing an audience of building society chief executives not to mention mutuality and it was clear that John McFall is a supporter of the concept, as member focus means societies are on the side of the consumer.
However, with one eye on his committee's packed agenda, McFall did take his leave with a shot across the bow to everyone involved in financial services – “Keep trying, guard against complacency and don't screw it up or else you will receive an invitation from the Treasury Select Committee.”