A free lunch?

There’s no such thing as a free lunch, or so the saying goes. This is very true with consumer banking apparently, as highlighted in the Sunday Telegraph business section today.


It appears that in order to provide ‘free’ banking to consumers it is necessary to allow wholesale mis-selling so that banks can recoup the cost of ‘free’ banking.

RBS now finds itself having to pay for past scandals and is having difficulty limbo dancing under the decency threshold that is in layman’s terms: flogging things in a transparent and simple way. For example, borrowing at 1% or less and lending out at 5% seems a pretty simple, decent business model which most could understand. But no, we must be sold packaged accounts with insurances that we may well already have, or do not need, and instead of overdraft interest at a reasonable rate we are to be charged £12 per item up to 6 times per month if we accidentally stray into the red.

All they need is the ‘Granny Test’. Would they sell one of their products to their Granny? If they would because they are proud to offer a transparent and value for money product then fine, but if not then either the product is wrong or they should not be in business because the ethics of selling a ‘rip-off’ product to even their own families makes them either too daft or unscrupulous to be in that line of business.

If you build trust with your customers then you can look forward to a lifetime’s reward from that customer – even if it takes time to turn a profit from the relationship. If you abuse that trust then you might gain a quick sale early on, but you could find yourself alienating a customer for life.

I think Handelsbanken of Sweden has the right approach – nothing is free there but you know what you are paying and you know what you are buying. Thank God someone has got the right idea and they have branches in the UK! Hooray!


(I don’t own shares in Handelsbanken and am not being paid to mention them)

Something is not quite right! $850m payment by Mercer parent?!?

So here we have Mercer and Marsh UK’s parent company in the US being ‘fined’ for allegedly taking backhanders from insurers without any disclosure to their clients. A bit of a conflict of interests one could say.

Of course, to avoid a lengthy legal battle and potentially even more bad publicity they settle without admitting anything. But action speaks louder than words – would you pay $850m just to get rid of an irritation, unless you had been caught bang to rights perhaps? I think there is more to this than first meets the eye.

Let’s take a look at the three favoured investment platforms that Mercer currently recommend in the UK. They seem to like Friends Life, Zurich (the old Allied Dunbar) and Aegon (formerly Scottish Equitable).

Is it just a coincidence that these 3 platform providers used to be very popular with IFAs due to the higher levels of commission payable? Could it be that Mercer favour these 3 platforms for reasons other than what’s best for the client? Could that American culture have possibly permeated into the UK subsidiaries? Surely not!

One could ask is there some sneaky benefit being derived that clients are not aware of? Why is it that Fidelity and BlackRock don’t get a look in? Surely they are highly regarded and super efficient, especially when you compare their back offices with the likes of Aegon. I think they still use a 1980s mainframe by the look of their printed output.

The extract below is from this site:


Insurance Broker Marsh & McLennan Fined $850 Million for Rigging Prices

By Joseph B. Treaster

The New York Times — NEW YORK

Marsh & McLennan Cos., the largest insurance broker in the world, agreed Monday to pay $850 million to settle a lawsuit accusing it of cheating customers by rigging prices and steering business to insurers in exchange for incentive payments.

Although the company did not formally acknowledge any wrongdoing, Michael G. Cherkasky, the chief executive of Marsh, apologized for what he called the “shameful” and “unlawful” behavior of “a few people” at the company. But he said, “We don’t believe that our corporate entity has ever been involved in a pattern of covering up or a pattern of criminal behavior.”

The $850 million, which Marsh will pay over a four-year period, will be used to compensate about 100,000 corporations and smaller businesses whose commercial insurance was arranged by Marsh from 2001 and 2004.

In the days after the charges were filed in October, Marsh stopped taking incentive payments from insurers and its chief executive, Jeffrey W. Greenberg, was forced to resign. The company agreed Monday to fundamental changes in the way it does business.

The lawsuit, brought by Eliot Spitzer, the New York attorney general, maintained that Marsh received kickbacks from insurance companies that increased the cost of coverage for its customers and did not serve as an unbiased broker. He has also been investigating other brokers and insurance companies around the country for similar activities, and attorneys general and insurance regulators in many states have joined in with their own inquiries.