Bankers must try getting rich slowly, for a change

As City veteran Sir Richard Lambert grapples with a new standards regime for the financial industry, Robert Jenkins, a former member of the BoE's banking watchdog, offers advice in an open letter

Sir Richard,

To anyone with a bank bashing bent, banker behaviour is the gift that keeps on giving. Revelations regarding JP Morgan and Madoff or RBS and Iran are but the latest additions to a lengthy list. Will it never end? All of which reminds me you are leading a new body to put standards and ethics back into banking. I wish you well. I understand your efforts will be independent of the banks that fund it. I wish you luck. Might it not be wise to balance the selfless generosity of your banking backers with financial support from the many groups who consume their services?

I believe your very first deliverable is a code of conduct. Here I have good news. Help is to hand. A model code is already available courtesy of the CFA Institute. As you will be aware, the Institute is the leading standards-setting body for the global investment profession. Members who pass a series of demanding exams earn the title Chartered Financial Analyst. The CFA moniker is highly regarded. There are over 10,000 charter holders in the UK and more than 110,000 worldwide. The curriculum has long incorporated a code of ethics by which the investment professional should operate. In 2005, the Institute extended this sense of duty to the level of the money management firm with the addition of an Asset Manager Code of Conduct. Signatories are required to formally attest to compliance. Some 900 firms currently do so. As you can imagine, many of these are investors or potential investors in the shares of banks.

Recently, the organisation went one step further and issued a Statement of Investor Rights. The purpose is to "advise buyers of financial service products of the conduct they are entitled to expect from financial service providers." The CFA's objective, like your own, is to help restore trust in the financial system. This bill of customer rights is pretty short and very powerful. It sports only 10 points to wit: consumers of financial services have a right to: 1) honest, competent and ethical conduct; 2) independent, objective and thoughtful advice; 3) the client's interest should take priority; 4) fair treatment with respect to other clients; 5) disclosure of conflicts of interest; 6) suitability of service in relation to client circumstances; 7) clear communication; 8) transparent, fair and reasonable fees; 9) confidentiality and 10) appropriate supporting records. No doubt you will improve upon this list. But should you be pressed for time, you could do worse than replicating it.

At the heart of the matter is how best to put the client first. Here, banks must answer – and clearly – two questions: 1) who is the client and 2) where does he rank in the pecking order? Regulators will insist that banks understand the former. Clients and bank shareholders deserve to know the latter. What a great opportunity you have to set the record straight.

I suspect this notion of "putting the customer first" will prove the most challenging part of your task. Banks serve multiple stakeholders – among which: executives, employees, shareholders, communities, society at large – and oh yes, customers. In the opinion of shareholders executives have ranked to near to top. In the opinion of customers, they have ranked pretty far down the roster. Given the plethora of penalties for misconduct it would be hard to argue otherwise. So you need to move the client up the list. Now, no doubt your silent banking backers will sheepishly suggest that doing so will conflict with their duty to the shareholder. And it is true that if short term profitability is a bank's main measure and motive, then putting the client first is indeed a problem.

However, if the objective is to build a solid enterprise which creates sustainable shareholder value, then putting the customer towards the top could well drive success for all. It just depends on one's time horizon for success. Naturally, bank executives would also have to be in it for the longer term and their incentives structured accordingly. But then, getting rich slowly would not be so bad for bankers would it? I mean, the "get rich quick" approach didn't really work out so well for most of the stakeholders on your list last time around – did it? And besides, banks are serious about all of this ethics and conduct stuff aren't they?

I look forward to reading your recommendations. Don't be timid. Your financial backers aren't.

Yours sincerely,

Robert Jenkins

Robert Jenkins is a Senior Fellow at Better Markets and a Governor of the CFA Institute. He recently served on the Bank of England's Financial Policy Committee

Start your day with The Independent, sign up for daily news emails
News
Disruption at Waterloo after a person was hit by a train
newsCancellations and disrupted service after person hit by train
Arts and Entertainment
music
Arts and Entertainment
The almost deserted Liverpool Echo Arena on Monday
tvCan X Factor last in the face of plummeting numbers auditioning
News
Kirsty Bertarelli is launching a singing career with an album of songs detailing her observations of “real life”
news
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Financial Adviser

£20000 - £60000 per annum: Recruitment Genius: Are you recently QCA Level 4 qu...

SThree: Graduate Recruitment Resourcer

£20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...

Guru Careers: Application Support Analyst / 1st Line Support

£25 - 30k: Guru Careers: We are seeking an Application Support Analyst / 1st L...

Guru Careers: .NET Developer / Web Developer

£45K - £55K (DOE) + Benefits: Guru Careers: We are seeking a full stack .NET D...

Day In a Page

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

How a costume drama became a Sunday night staple
Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

Miliband promises no stamp duty for first-time buyers

Labour leader pushes Tories on housing
Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

Aviation history is littered with grand failures

But what went wrong with the SuperJumbo?
Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

Fortress Europe?

Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
Never mind what you're wearing, it's what you're reclining on

Never mind what you're wearing

It's what you're reclining on that matters
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence