Tuesday, February 9, 2010

(No.78) More about financial services deficits

Below I have selected several responses to Parts 1 & 2 (column Nos. 75 & 77) in my series "Financial services deficits: a screed" on RickardsRead.com.

Column No.76 also provided email comments from readers on the "accountability deficit" and related matters in financial services.

For reasons of privacy I have withheld the writers' identities. However in order to provide some context for the views expressed I have preceded each email with a brief reference to the writers' role or business connections.

Words within square [brackets] and italics are mine.

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The corporate promotion process deficit (and other deficits) in financial services
ref. column Nos.75 & 77 on RickardsRead.com

1. from a senior life insurance industry executive with wide experience in Canada and elsewhere:

You write good stuff. It should be required reading by all new leaders but as we know those that need to know it best will ignore the truth since they cannot handle the truth!

The [life insurance] industry has continued down the road of competing on price here in Canada (both insurer and reinsurer) with price reductions rolled out last fall when what is needed is an increase in price to bring back service, training of advisors, more flexibility in risk taking and less claim adjudication nightmares.

It is like the governments: the federal government stops transfer payments to provinces (reinsurer lowers mortality charges), provinces push their services down to municipalities (insurers pass on lower prices to advisor/consumer) and in the end we have a consumer paying more for everything near and dear (advisor makes less commission on lower premiums, gives less service because [the advisor] gets poor service in underwriting, training and tighter claims adjudication.

And we continue to find ways to get the stuff to lapse before it becomes a burden on reserves and capital requirements. Round and round we go again.

The age of "me" is here to stay in executive lounges (they have grown beyond offices).


2. from a senior person in a provincial government:

Re No. 75 "Pt 2- Financial services deficits: a screed" --
This was probably one of your best columns so far... Keep going!

3. from a financial planner licensed in the life insurance business:

Re No.75 -- I have been reading with interest your columns on the malaise affecting our corporations, especially the financial services industry. They are as usual quite informative and thought provoking. Keep it up.

4. from an American experienced in the life insurance industry:

Re No. 75 -- On target, as usual. And it sparked a thought ....

Undoubtedly the demons in the recent (and, like the unwanted guest, lingering) financial crisis are (1) failure of boards to do their duty, (2) failure of regulation. Of course if boards did their duty the de minimus regulation of the Bush years probably would have worked. Unfortunately the incentives for boards are mostly to look in the other direction and hang on for the ride.

Still, I have a theory that there may be another more basic and human problem. I have the sense that selfishness, the balance of duty to self vs. duty to others, is a generational thing -- that it goes in fairly long cycles.

Most of the things that have been done to unfairly heap wealth on this generation could have been done in the past but there was something that kept it from happening. There was some sense of balance between personal benefit and the needs of others. Clearly the current leadership generation has no sense of proportion. Not since John D. Rockefeller or J.P. Morgan have we seen business leaders as indifferent to simple fair play as the bankers who just testified before Congress.

You'd have to go back to the post-Civil War period in the U.S. to find a period of similar selfishness and greed. Fortunately it started to end when Teddy Roosevelt became president and the reform movement began. That's not to say that there was no greed between 1900 and, say, 1982 when the new movement started -- it's just that the level was not as breathtakingly excessive. The WWII generation probably was the most balanced in terms of benefiting self vs. others.

Proving my thesis is a lot harder than stating it, and I'm not going to try. However, believing it as I do gives me some sense of hope for the future. I don't think the reform will take the same guise as the one that Teddy started but I hope that this tsunami of excess is running its course and the next generation of leaders, those now in the wings, will have a better equilibrium.

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RickardsRead.com welcomes emails from readers whether they agree with views expressed on this blog or not. Emails may be sent to: Alastair.Rickard@sympatico.ca

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Alastair Rickard

RickardsRead.com

email: Alastair.Rickard@sympatico.ca