The proposal that bankers should take an oath to help rein in previous excesses has, somewhat predictably, attracted less opprobrium than threatening to claw back bonuses for up to seven years.
The oath idea was advanced by ResPublica, a think tank, in a report on restoring virtue to finance.
‘Britain’s bankers lack a sense of ethos and the institutions they work for lack a clearly defined social purpose. In order for us to have the banks we desperately need and the country deserves, bankers must recognise the good, do the good, and be good,’ it said.
ResPublica drew on work from Harvard, which is to introduce its own pledge to an ‘honour code’ next year. In a wide-ranging review, the university found in institutions with such codes, violations of integrity were reduced. Harvard also concluded that, by making expectations about behaviour explicit, such pledges promoted conversation about conduct and boosted confidence in the community as a whole.
Importantly, the intention of this oath is to raise standards rather than provide a new means to censure non-compliant behaviour. One Harvard professor dismissed such a purpose as a ‘creepy, Orwellian reason for having such a code’.
Does anything commend such a system to the wealth management industry?
Despite the sector’s self-perception that it stands separate from a discredited banking sector, it has itself been hit with a number of misselling scandals and blow-ups in recent years. Many of these stem from inherent conflicts of interest and an oath could theoretically help to counter these, alongside regulatory pressure.
Chris Sexton, investment director at Saunderson House, believes an oath could have a role, primarily committing investment managers to act in a client’s interests at all times.
‘If you had a plaque on your wall saying you would treat clients’ money as your own, that would be quite powerful,’ he said. He contrasts this with a ‘buyer beware’ culture that has pervaded the industry in the past.
He believes an oath to put the client’s interest first would have immediate consequences for those allocating to in-house products. ‘There is an innate conflict there. I refuse to believe those captive funds are the best funds for clients on all occasions.’
He draws a comparison between wealth managers using expensive internal funds and doctors prescribing drugs to patients on the basis of which pharma company offers the most lucrative incentives.
John Crowley, chief executive of Hawksmoor, is more sceptical of the power of an oath. ‘All an oath would serve to do is focus the mind on what is already there. There are already clear standards.’
He added: ‘To have something imposed on high might concentrate the mind for a short period, but it would swiftly become a box-ticking exercise.’
So where does the responsibility for ethics and standards lie: with the individual, the employer, or a governing body? Both Sexton and Crowley suggest ultimately it is up to the firm.
‘I am not sure that this has great mileage,’ Crowley said. ‘That is not to belittle the importance of ethics, but the key is more in action by the firms.’
Sexton agrees the employer is responsible. ‘If an individual turned up with the wrong mind-set, they would not stay very long. That is more powerful than the regulator outside. The firm has to set the tone: employees will fit in with that.’
Yet the regulator also has its role to play, Crowley said. ‘A better way forward would be to put ever more rigorous demands on the industry to ensure that staff adhere to these standards.’
Mikko Arevuo, a fellow at the Adam Smith Institute, agrees that ‘the quickest way to drive behavioural change is through regulatory interventions’, and warns oaths are ‘excessively naïve’ and can give a false sense of confidence.
In a similar vein Daniel Pinto, chief executive and co-founder of Stanhope Capital, has backed the unlimited liability partnership as a good model for focusing minds in such a way.
That would truly force senior wealth managers to pin their money to their reputations.
The Bankers’ Oath, as proposed by ResPublica
‘I swear to fulfil, to the best of my ability and judgement, this covenant: I will do my utmost to behave in a manner that prioritises the needs of customers. It is my first duty to provide an exemplary quality of service to my customers and to exhibit a duty of care above and beyond what is required by law.
‘I will apply myself to ensuring that the work that I perform is in line with values that engender the responsible creation of value. It is my duty to conduct my business in an ethical manner and to ensure that my actions impact positively on the wellbeing of people both inside and outside my enterprise.
‘I will confront profligacy and impropriety wherever I encounter it, for the conduct of bankers can have dramatic consequence for society. I will remember that I remain a member of society, with special obligations to the financial security and wellbeing of my customers, their families and the communities they reside in. If I do not violate this oath, may I benefit from the prosperity that comes from serving customers well.
‘May I always act so as to preserve the finest traditions of my calling and may I long experience the joy that comes from supporting the needs of society. This oath I make freely, and upon my honour.’