topic 8

• Information and advice


  • Accurate
  • Up to date
  • Transparent
  • Timely sufficient but not too complex
• People have to make complex financial decisions in their everyday lives, but many do not know very much about personal finances
• People need to be able to access information and expert advice before deciding which product suits them best
• Factors that influence financial choices

  • The original want or aspiration
  • Feasibility of access to a financial to fulfil the want or aspiration
  • Information sources
  • Personality
  • Price and product features
  • Reputation of the provider
• Ethics is an important sector because money and finance depend on trust
• Many financial services providers behaved badly in the years before the financial crisis of 2007-08
• Compliance with rules does not necessarily mean that a provider is behaving ethically
• A provider may behave unfairly to a group of customers but not be breaking any rule, simply because no such rule exists
• Financial transactions have certain implications beyond the interests of a bank's customers as they affect the interests of other stakeholder groups
• In order to provide ethically, a provider must go beyond simple compliance and have an ethical culture
• The culture of an organisation refers to its shared values
• The top directors in large banks receive large salaries and performance-related bonuses which can run into millions of pounds
• Regulators have begun to address the issue and the European Union now caps bank bonuses at one year's salary, raising it to 2 years' pay if there is explicit approval from shareholders
• The UK government was opposed to a cap on bank bonuses, fearing it would cause senior managers to leave the country and harm the financial sector on which the UK depends
• An ethical response to the issue would be for a provider to limit the salaries and bonuses it pays to its top staff while maintaining a reasonable difference from the pay of people at lower levels in the business to motivate and reward top talent
• Corporate social responsibility


  Any action or project in which a company goes beyond the interest of its shareholders and top management to benefit its stakeholder groups
• Some critics say that CSR is simply a window dressing: it is part of the company's overall marketing campaign and aims to create a good image to cover up its other less ethical policies
• CSR is good because it can help businesses give back to the community (banks)
• Ethical investments


  Investments made in companies that take into account the wider impact of their activities on society and the environment
• Before people invest or save in a company they can do some research on them to see if they are comfortable with the goods or services it produces
• Charities supported by financial services providers

  • The co-operative bank- charities and ad has a specialist charities
  • Nationwide- Macmillian cancer
  • Barclays
• Sustainability


  The way we live, now and in the long term, involving taking steps to ensure that the present standard of living enjoyed by people in developed countries can continue in the future
• Aspects of sustainability


  • Environmental sustainability
  • Economic sustainability
  • Social responsibility
• There are strong links between environmental, economic, and social sustainability
• Environmental sustainability is about reducing the negative human impact on the earth's ecosystem
• Economic sustainability is about reducing the undesirable consequences of economic activity by maintaining consumption on a sustainable scale rather than trying to achieve continual growth
• Social responsibility is about creating communities that foster well-being, peace, security and justice for the people who live in them
• The product group that gives the most scope for expressing an ethical opinion is that of savings, investments and pension funds
• The Ethical Investment Association (EIA) helps its members to find out which companies have greener and more ethical policies
• People who want to support a charity can open an affinity savings account, as long as their bank or building society offers them
• It can be argued that all the large multinational providers are very similar in that their main aim is profit and that it makes no difference which provider or product a customer chooses
• People who are very keen on buying ethical and green products might consider becoming customers of a building society or other mutual
• Islamic finance


  Based on the principle that a person should not enjoy an increase in wealth from allowing someone else to use their money unless the first person is prepared to expose their wealth to the risk of loss
• Sharia law sees profit as a return for the effort someone puts into a business
• Sharia law requirements for investments

  • Free of interest, speculation and gambling
  • Made in permissible activities
  • Separately approved by an independent Sharia supervisory board to ensure that the principles have been adhered to
• A halal investment avoids putting money into industries such as alcohol, tobacco, gaming, adult entertainment and weapons and into businesses that derive their profits primarily from interests, such as lending institutions