Why transparency matters within the financial services industry

By Janice Roberts
Editor

Larry Solms of Itransact on the cons of robo-advisers

Transparency plays an exceedingly important role within the financial services industry, where a wide selection of people and businesses alike are fundamentally connected in one economy.

With the arrival of social media, where consumers can rate and review literally any service, including the strict regulations imposed by governing bodies, it is essential for these financial service providers to not only operate within the letter of the law, but also to remain transparent in their actions.

“Too often the line between what is transparent and what is authentic is blurred; some corporations may even exploit these grey areas (or loopholes), to make a quick buck. However, ethics violations in the financial services sector have far reaching consequences for the entire economy and consumers,” says Lance Solms, Head, Itransact.

Financial services allow people to make daily economic transactions, save and preserve wealth to meet future aspirations and retirement needs, and insure against personal disaster. The South African financial sector is characterised by high and opaque fees, and, in some cases, the unfair treatment of customers. For savers, particularly the poor and vulnerable, savings instruments are limited, expensive and inappropriate.

According to O.C. Ferrel in his book, “Business Ethics: Ethical Decision Making and Cases” a lack of transparency concerning complex financial instruments played a significant role in the development of the financial crisis of 2008/2009. The crisis left investors with negative connotations regarding the financial industry globally, to the extent that many have lost their confidence in the main economic model.

Today, the public seems to have the perception that the financial services sector is more unethical than other industries. Due to its vast size, the industry tends to get lots of headlines, many of which hype its ethical failures.

“When it comes to savings and investment, we place our hard-earned cash in the care of a financial institute we’ve identified. We trust that asset managers, banks, and insurers will look after our investment, ensuring a satisfactory return with a healthy balance between risk and reward. We feel confident that we can trust financial professionals to act in our interest, more importantly, with integrity,” says Solms.

Governments and regulators have legislated and implemented numerous new laws in recent years and the financial services industry has been a target of many of these new regulations.

“In a time of reduced economic activity, a reputation for integrity may help maintain the loyalty of investors. Businesses in the financial industry should be transparent with their customers, revealing all pertinent information before signing on the dotted line. Equally to ensure that all parties understand the various contracts and/or policies so that there is no confusion later,” says Solms.

“Confusion leads to frustration and the inevitable breakdown of trust. And in a society where everything and everyone is connected, it behoves financial service providers to behave in a fair and just manner, not just because the law requires it, but because individual companies and the public benefit from participating in an honest system,” concludes Solms.

Visit the official COVID-19 government website to stay informed: sacoronavirus.co.za