This article appears in the February 2021 issue of Advisor’s Edge magazine. Subscribe to the print edition here.
Even within the context of the Trump era, the extent to which the pitchforks were out at the start of the year is alarming. The chilling images of rioters looting the U.S. Capitol in support of the outgoing president managed to shock even those accustomed to the past four years’ rejection of norms. In Canada, leaders who exempted themselves over the holidays from the pandemic precautions they’d pushed on others were welcomed back with scorn and demotions.
Some observers point to the 2008 financial crisis as a tipping point in institutional trust. Ordinary investors lost their savings and homes only to see banks bailed out and executives issued bonuses. The pandemic hasn’t helped perceptions: stock markets rebounded quickly from the initial Covid-19 shock to reach new highs, while small businesses depend on government handouts for survival.
We’ve mentioned before how this negative perception of the financial industry has been used in advertising to portray advisors as schemers set on separating people from their savings. Onto this fertile ground steps Nigel Farage.
The leading figure in the Brexit campaign has aimed his populist ire at the financial industry. Fortune & Freedom with Nigel Farage, a website launched late last year, uses the same language that proved so effective at corralling the “Leave” vote in the 2016 referendum on EU membership. The target this time is “the bloated and self-serving mainstream financial industry.”
“I’ve spent thousands of hours talking to the man on the street. And I know they’re not happy having their destinies in the hands of someone else,” an introductory note says.
“I’ll show you that – sadly – the financial system is rigged against you. […] We’ll talk to you on the level, in plain English. We won’t be hiding behind any of the spin or jargon the financial industry like to dazzle people with.”
The fact that one of the world’s most successful populist politicians sees the industry as ripe for his “new crusade,” as the site indelicately puts it, should be cause for alarm. And it’s not as if his claims are entirely baseless.
It’s significant that Farage is using a money-making venture to target the industry, rather than a political movement. He worked in finance before going into politics. Industry organizations devote resources to thwarting regulatory efforts from government, but the larger threat may be from businesses (like online brokerages and robo-advisors) that exploit the industry’s mistakes. In that sense, regulation could be an ally.
Canada’s energy sector provides a useful comparison. The industry devoted resources to lobbying and public relations that may have been better invested in technology to reduce carbon emissions from oilsands production. Some firms have recently made strides in this regard. Some have also realized that more regulation can validate their progress. If you have a reputation problem, you may need an independent arbiter to confirm you’ve overcome it.
So far, the financial industry has taken a different tack. Industry lobbying helped convince the Ontario government to overturn the Canadian Securities Administrators’ ban of mutual funds with deferred sales charges. The client-focused reforms are only coming into force this year after resistance from industry groups. The push for exemptions and the dilution of Ontario’s title regulation is on.
Is the industry shooting itself in the foot? It’s much harder for insinuations about hidden fees to gain traction when you can’t sell funds with hidden fees. Accusations about conflicts of interest are less likely to stick when you can point to strong rules against their occurrence. And advisors can more readily parry accusations of charlatanism when they’ve had to meet regulatory standards to earn their title.
In a world of declining trust, it’s not enough to fight for the status quo. Embracing higher standards may just keep the pitchforks at bay.
Editor’s note: This issue of the magazine went to print before a group of retail investors took on hedge funds that had shorted the stock of videogame retailer GameStop.