Barclays PLC agreed to pay $453 million in fines to U.S. and U.K. regulators this week as part of an ongoing probe of interest rate manipulation after admitting that traders and executives there tried to manipulate interest rates tied to loans and financial contracts around the world. Other banks that have disclosed that they are under investigation in this matter include Citigroup, HSBC Holdings, J.P. Morgan Chase, Lloyds Banking Group and Royal Bank of Scotland Group. UBS has reached immunity deals with a variety of regulators. The wrongful conduct at Barclays lasted at least four years and at times occurred on an almost daily basis.
I can’t say that I am surprised that traders would try to manipulate rates in order to benefit their positions and to make the bank appear stronger than it was or even that higher-ups would lie to try to cover for them. But I was struck by the sort-of defense offered by Barclays. Apparently a senior manager at Barclays warned the bankers’ association (responsible for the setting the rates being manipulated) in a telephone call in 2008 that the bank hadn’t been submitting accurate Libor rates while claiming it was not the worst offender on the panel.
Note this fascinating turn of the phrase: “We’re clean, but we’re dirty-clean, rather than clean-clean,” a Barclays employee stated. Perhaps even more damning, a bankers’ association representative responded: “No one’s clean-clean.”
As an industry, we’re far too willing to settle for “dirty-clean” – the idea that we’re not all that bad or aren’t as bad as someone else. It is reflected in the actions of investment banks and advisors claiming to act in the best interests of clients while rejecting anything like a fiduciary standard. It is reflected in fiduciaries acknowledging the business and other pressures to do what’s good enough instead of what’s truly best for clients. It is reflected in those in a position to do so gouging their customers simply because they can and because the rules may allow it.
Clients are cynical about us. They have every right to be cynical. We have earned it. If we are going to improve our image – and more importantly do what’s right and best for our clients – we’re going to have to do much better. We need to be clean-clean.
The absolute refusal of financial institutions, brokers and many kinds of financial advisers to be held to a fiduciary standard (while claiming to act in their clients’ best interests, as you point out is appalling). The arguments against it were legendarily lame — for example, financial advisers snowed Congress and the regulators into believing that applying a fiduciary standard would lead to a shortage of hundreds of thousands of advisers, leaving millions of Americans without crucial advise needed on their IRAs and other retirement accounts. Why? Because they will be unable to dupe uninformed customers (let’s be honest, they are hardly clients) into buying unsuitable, highly profitable (for them) and poorly-performing insurance products. Meanwhile, financial advisers act and advertise as if a fiduciary standard applies.
But really, if you explain to people in plain English what “fiduciary duty” means, they would be totally shocked to learn that it did not apply: the duty to safely hold your assets in trust for you, and to put your best interests before their profit.
For a while, I used to take financial advisers calls because I loved to torture them as they tried to somehow explain to me why a universal life policy was absolutely the best investment for me (being single, childless and in my late 20s and early 30s).
To some extent, it is a reflection of our “dirty-clean” political system. If there were real sunshine on what lobbyists were doing (and if people cared), then we would not have these issues.
I largely agree, but there are some legitimate issues with applying a fiduciary standard across the board. Not all product “shelves” are comprehensive enough. Some products aren’t available via an RIA (fortunately, that is changing pretty quickly). Also, many individual reps would surely accept a fiduciary standard but it’s not their call. It’s easy to suggest they leave their firms, but that is much easier said than done.
As always, I appreciate your reading and commenting.