Darryl Boulton argues that using concealed fees in any area of business is the cowards way to make a profit
Businesses largely exist to make profit. Indeed, unless they have a monopoly there is nothing wrong with maximising this profit. But how they maximise it does matter. So what is an ethical business? Is it green?
Does it treat customers fairly? Should it be a mutual perhaps?
What is green?
Should I wash my tin cans out before I pop them out for recycling? Has anyone thought about how much water you should use to do this and whether the energy saved by recycling surpasses the resources used to remove a stray baked bean? Perhaps more pertinently, if someone could explain why it makes sense for a 40-tonne lorry to drive about a mile down a country lane to pick up my six empty tins once a fortnight then I am all ears. Never mind, I digress.
Treating customers fairly
There are, of course, many ways in which this could be interpreted. I would suggest a reasonable working definition would be to clearly explain all charges, not to deliberately mislead customers and not to take advantage of information asymmetries.
So who is guilty? Where do I start?
? Restaurants with service charges: A tasty keema naan may seem reasonable value at £2.95, however, when an extra 10% (or sometimes 12.5% if they are really rude) is added, I feel less comfortable. Having turned 50, I find the ever-increasing need to boost my eyesight with spectacles, but an extra strong pair is often needed to read the very small print covering the service charge.
Why not just add 10% onto the basic prices? Well I can guess the answer to that - it may make it look too expensive. I never go back to a restaurant that levies a service charge.
? Foreign currency exchange: How often do you see adverts citing 'nil commission'? Do those same adverts tell you how much of a margin is being taken on the exchange rate offered? Certainly not nil!
I expect the average actuary (and budding actuary) would have the common sense to just look at how many Euros (or whatever) you get for your £500. However, given the thrust of the adverts, I doubt whether this approach is common. Indeed, how many members of the public even realise there is an effective (very large) charge through the margin taken on the exchange rate used?
I have found the best rates are usually through taking cash abroad and using a (non-bank) money changer. That says it all.
? PPI: Dear [make up a name] Bank, I wrote to you in 2003 to complain about the PPI I believed you had missold to my then partner.
I pointed out that insurance companies had been hammered for misselling and that you were laying yourselves open to a similar problem that could cost you billions.
You wrote me a snotty letter back rejecting my claim and ignored my warning. Of course, you had the last laugh when my shares bombed out, but I do wish I had kept the correspondence.
My point here is that any inappropriate 'piggy-back' product is effectively a hidden charge and companies should be punished for such practices.
? 108% allocation: And, lastly, onto home territory - misleading insurance or investment products. It would be rather pointless to ask insurers to detail every charge they make - from bid offer spread to mortality to rounding (although this information should be available for those who want it). What should be punished are product features that can only be there to mislead.
Several years ago, I recall a number of insurers 'bidding' to see who could offer the highest allocation for a lump sum investment product. I'm not sure if it was the winner, but I recall one company offering to allocate 108%
of your money to your chosen fund. 108% really? Er, no, this just makes it look like we are giving you an extra 8%, when, in reality, a combination of the bid offer spread, early surrender penalties, actuarial funding (remember that?) and misleading statements ensured you never really had more than 100% allocated. I hope we have learned our lessons and that such shameful practice is behind us. I think it is, unless you know better
Avoid the cowards
I admire profitable companies - they are boosting my pension. But I hope I never unwittingly support those who take the coward's route to profit.