My column for Financial Adviser on personal responsibility

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My column for Financial Adviser, which first appeared in August 2014…

Iona Bain

A powerful perception has taken root in the British psyche, and it will take a lot for it to die any time soon. When things go wrong in financial services, the guilty do not get punished.

They may get fined, slapped on the wrists, even forced out of their jobs. But most stay where they are or ride off into the sunset having been rescued by the state, none the wiser, a bit richer and with plenty of opportunities to keep climbing the greasy pole.

Having recently finished Ian Fraser’s book, Shredded: Inside RBS, the Bank that Broke Britain, I don’t think I have ever read such a perfect morality tale for our times. Praised by the FT as “monumental”, it is bound to infuriate those who crave payback following our crippling fin­ancial crash. Fred Goodwin played a huge role in bringing an historic institution to its knees, only to walk off with a £324,500 pension, a £5m tax-free lump sum and past bon­uses. He was not the only one.

According to Mr Fraser, chief executive of RBS subsidiary Citizens Financial, Larry Fish, broke UK records with a pension worth £16.88m, while Gordon Pell, RBS’s ex-chairman of retail markets, got £9.83m.

How can this perverse outcome occur within a Darwinian economic model, which dictates that Goodwin et al should now either be behind bars or frequenting food banks?

Financial commentators like Dominic Frisby have long identified banks as the most egregious examples of bodies allowed to creep outside the natural order of the economy. They believe we have a broken “crony” capitalist economy, with personal responsibility and accountability undermined by the state. It is one reason why the financial sector has such a task in persuading consumers to save for retirement, buy protection products and use their pensions sensibly when new freedoms are introduced next year.

Think about it: where is the example for personal responsibility being set? Where are the visible signs of sacrifice that would benefit society tomorrow?

At a national level, even coalition politicians, supposedly symbols of fiscal restraint, continue to rack up debt to placate today’s voters. Organisations hoping for more public subsidy and favourable policies grab slices of an ever-bigger state budget.

There is a disturbing detachment from responsibility in the upper echelons of these organisations and a sense of entitlement to great rewards, regardless of results. RBS shareholders and the board didn’t have the teeth to hold Goodwin to account. It led him to fiddle, obsess about stationery and tear up the wrong coloured carpets at London HQ, while proverbial Rome burned.

This model is the antithesis of the true entrepreneurs, who have everything to lose if their business fails. Such a culture should be anathema to hardworking individuals who will keep financial services propped up for the next 40 years through a determination to provide for their family.

There has been a shift in our relationship with the state. Many of us believe our duty to pay taxes gives us the right to government help. Why should we be declined, when the likes of RBS can dip its hand in the nation’s till so freely?

I foresee great potential for confusion, disappointment and heartbreak when the National Wealth Service gets under way, as naïve members of the public expect the in-depth help that can only ever be provided by qualified advisers. People will buy inappropriate products through various D2C channels, assuming the regulators would never let them get into trouble.

Ironically, George Osborne’s decision to let the people decide about their financial future opens up a can of worms, precisely because previous governments have done so little to promote personal responsibility in areas that only an individual can take care of: savings, protection and pensions. Yes, the current administration has done a fair bit to engineer a subtle reversal of this with auto-enrolment and financial education. But it will take serious political skill to encourage individual financial engagement ahead of the new pension freedoms without suffering a nasty backlash.

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