There's a bit of Sting in us all

It's not just rock stars who get ripped off. And it's not just rock stars who are fiscally challenged; All of us, and not just the wealthy pop stars, need to learn a modicum about money
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The Independent Online
There are two messages for the rest of us in the tale this week of Sting, the rock star who was fleeced of pounds 6m by his accountant but was too rich to notice.

The first is that if the system cannot be trusted to supply appropriate financial advice to people worth tens of millions, it is hardly surprising that people of more modest means feel a little short-changed by the quality of service on offer. The second is that everyone, but everyone, needs to pay more attention to their money. The oh-so British social disdain for the stuff, the "frankly I'm much more interested in opera/football/Tuscany" attitude, is damaging and destructive.

The story needs no elaboration. On Tuesday, Sting's accountant was sent to jail for six years for stealing from him. The money had been siphoned out of Sting's accounts at Coutts Bank and invested in a variety of wacky schemes including a plan to convert Russian military aircraft into passenger jumbos. However, the star got most of this money back as Coutts repaid him pounds 4.8m, plus interest.

What is interesting, though, is the detail: for example, that Sting was too busy to check his bank accounts, despite the fact that he had an A- level in economics and had worked for the Inland Revenue. Or that his wife, Trudie Styler, did not look at them either because she was afraid people might suggest that she had married him for his money. Of course, this is far from an isolated example of successful pop stars handling their money badly, but there is a familiar ring to it. Knock off a few noughts and there is something in the Sting/Styler approach to money in most of us.

When there is a mismatch between the need for a service (in this case good financial advice) and its availability, the economist's response is to look both at the supply and demand and ask what is wrong. On the supply side, it ought to be possible not just for pop stars to buy the highest quality advice, just as it should be possible for everyone to buy decent quality advice at a somewhat less sophisticated level. On the demand side, people should be ready to do some homework and check for themselves that the product is as good as it is cracked up to be - just as they would were they choosing a holiday or buying a car.

In truth, there is something wrong with both the supply and the demand for financial services. I asked a group of fund managers and investment bankers at lunch in the City yesterday why Sting had not been better advised. Several explanations were advanced. One was that the traditional merchant banks, who would do the job competently, were poor at marketing their services. They did not realise the highest earners in Britain were people in the entertainment business, rather than the more traditional occupations, and so did not target their sales effort at them. Another explanation was that would-be clients in the new industries would look at the price the merchant banks charge for their advice and be so aghast that they would go elsewhere. Clients in more established professions, on the other hand, would be more prepared to stump up.

Still another idea was that the brand image of the traditional merchant bank or stockbroker was unattractive to many people: that many did not trust the City. They were impressed and concerned, for instance, at the way in which a newcomer like Richard Branson had made such inroads into the business of Peps.

There is something in all of this. There is a marketing problem and a cost-control problem. "High net-worth individuals", the technical term for the rich, are a profitable and attractive source of business. Every decent financial service company wants them. But they do not know how to attract such people, for they all too often still seem to think that snobbery or a curious mock-aggression is the thing which turns on the rich. So the pitch is either "pass-the-port" stuff, or something on the lines: "you demand performance from your staff; we believe you have a right to demand it from your bank".

As for costs, the financial service industry has long been poor at controlling these. People read about the amazing salaries paid to some in the City and assume this is what drives costs up. Sometimes the City does indeed pay over the odds for mediocre people, but the problem is more one of general attention to detail, rather than paying a relatively small number of people enormous salaries. Financial services are a manufacturing operation, but run without best-practice manufacturing disciplines.

If the supply of financial services is not as good as it should be, it is at least better than that available in most countries outside North America. I think more of the problem is on the demand side. There is an education problem. To caricature, we teach our children things they will not need to know, like German (the Germans all speak English), but none of the things they will need, such as how to organise their personal finances. It would be nice to see the new drive to up-skill the nation taking this into account, but I doubt it will. Imagine the Labour Party fussing because we are failing to train enough fund managers.

There is a cultural problem. People feel they add to their status by saying that they are too busy to be interested in money, whereas they are not too busy to go to the theatre, watch football, play golf or do whatever else they think their peer group admires.

There is also the problem of mystique: the idea that it is all terribly complicated, whereas finance is 99 per cent common sense. The remaining 1 per cent is Nick Leeson. (By that, I mean the quagmire embracing luck, stupidity, greed, risk, chutzpah, cunning and other such characteristics of the human condition.) All this matters terribly and will come to matter more. For at least three generations the state has gradually taken on increasing responsibility for handling individuals' finances. It has taken away more and more of their money and (after deducting expenses) given more and more back in services and other benefits.

That whole process is now in reverse. Whether that is good or bad is irrelevant. It is a fact. Demography alone dictates that the retreat of the state will continue for at least two generations. Even if taxes do not come down by very much, the benefits will, because there will be fewer earners and more dependants. It is therefore absolutely vital that the financial services industry takes on some of the responsibility shed by the state. This means creating products we can trust, making them cheaply and selling them efficiently. It also means that all people, not just the pop stars but - more importantly - the rest of us, need to learn a modicum about money.

If Trudie Styler had examined her husband's bank statements she might have spotted the millions sliding away. A former senior Labour politician whom I know (and, incidentally, much admire) is married to a former fund manager. Every time I meet him they have made some new and brilliant investment. Maybe the moral of this Sting affair for the fiscally challenged is: if you can't beat 'em, marry 'em.