Why journalists matter
Speech by Callum McCarthy, Chairman, FSA
Wincott Foundation Lunch
Friday 4 May 2007
I should start by declaring an interest. I am both the son of a journalist and the nephew of a financial journalist. My father, Ralph McCarthy, was the last editor of the London evening paper, The Star – which, when it merged with The Evening News in 1960, had a circulation of almost ¾ million. (The Standard, today, has a circulation of just over ¼ million.) My uncle, George McCarthy, was the first financial editor of the then Labour newspaper, The Daily Herald (it was thought doctrinally rather suspect for a Labour newspaper to have a financial editor – how times have changed), and then became financial editor of The Scotsman. It will not have escaped your notice that of the five titles I've mentioned three have disappeared. It is, of course, not a new phenomenon. One of my favourite Sherlock Holmes stories – The Adventure of the Blue Carbuncle, published in January 1892 – has the following exchange between Holmes and a page boy named Peterson at 221B Baker Street:
Holmes: "Here you are, Peterson, run down to the advertising agency and have this put in the evening papers."
Peterson: "In which, Sir?"
Holmes: "Oh, in The Globe, Star, Pall Mall, St James's, Evening News, Standard, Echo – and any others that occur to you."
At least The Standard, I am pleased to be able to say, still survives.
I declare this interest because it informs my attitude to the press. Four years ago, when Howard Davies spoke at this occasion, he characterised his motive for doing so in a single word – "revenge" (though, having épaté-ed la bourgeoisie, he went on to make more serious remarks). My motive is not revenge. By and large, I think institutions – including the FSA – get the press they deserve: not necessarily in relation to any particular event or incident, but broadly reasonable over the longer term. Rather, if I had to choose a single word to characterise the motive for my attendance here today it would be "sentiment": an attachment to the printed word, a strong belief in the contribution that journalism can – and often does – make to a more open society, a preference for a large number of competing titles, a profound hope that the decline in this number will be halted, a – possibly increasingly old fashioned – trust that I will find facts, not simply opinions, within newspapers – and, of course, filial affection. And, you will have noticed, it also leads to a natural tendency to associate journalism with newspapers, and to neglect broadcasting. I apologise to broadcasters for that.
But, whatever the difference in our claimed motives for being here, I share with Howard Davies an objective: to identify how you, the press and broadcasters, can help the FSA achieve our objectives, and to persuade you so to do. In particular I want to identify what you already do – and what other things you usefully could do – to help bridge the abyss between the expertise of those who construct and sell financial products and those who use and buy them: what economists call the information asymmetry.
The scale of this abyss is frightening. We know that users of financial products are poor at planning for their future financial needs, and poor at selecting particular products. The basic understanding of finance is often missing. For example, if asked to choose between receiving 10 per cent of £300 and £35, more than 20 per cent of adults choose the lower sum – or, putting it more starkly, one in five of the population would not have understood the first half of this sentence. If you ask those who have invested in ISAs (presumably a financially more knowledgeable section of the population) about their investment, 15 per cent of those who have cash ISAs believe they have exposure to the equity markets (which, of course, they don't have) – whereas 40 per cent of those with equity ISAs think they have no exposure to equity markets (which, of course, they do). I could give other examples, all illustrating all too clearly the low level of financial capability many of your readers have.
There are many things which journalists write which help, if not in bridging, at least in reducing this gap. There is first of all the provision of information, particularly the information set out in product comparison tables (I should here make an endorsement of the FSA's comparative tables on "money made clear", which we are always pleased to see both reproduced and referred to; but there are other objective sources such as Moneyfacts and some of the money supermarkets). The simple act of publishing data on returns or costs of services in a single accessible way is an important contribution to making the market work. But there is a more constructive and creative contribution, namely the commentary which you add to the data. I think you underestimate the extent to which we at the FSA rely upon you to do this. We have, for example, overhauled the regulatory regime for the with profit products of life companies putting stress on the statement by life companies of their Principles and Policies of Financial Management (the PPFM statement). We recognise, of course, that few – very few – policyholders will take the trouble to read and compare different PPFMs from different companies. But we hope that they will be used and analysed both by financial intermediaries and by financial journalists – and that you will translate what are sometimes complex statements into clear and pithy advice. We rely on your plain language Q&As and real life case studies to make regulatory initiatives come live.
Second, there is the application to financial services of the general task of all journalists of identifying error or abuse, and mobilising public opinion to see those corrected – a distinctive part of the journalist's contribution to maintaining an open society. It is important that you continue to spread the word on where users of financial services have legitimate cause for concern, and help them make use of the channels of recourse provided for them: complaint to the firm in the first instance, and – if this proves unsatisfactory – to the Financial Ombudsman Service. I think the financial press should be pleased with the way in which it has helped make people aware of their rights in respect of, for example, mortgage exit administration fees or – if I move to an area for which the FSA does not have responsibility – in relation to bank charges generally. I think it important that this task is done in as focused a way as possible: the power of the press is all the greater if it distinguishes clearly between good and bad firms, good and bad practices. The largest item (albeit unrecognised by accountants) on the balance sheet of most retail financial services firms is the value of their brand. Failure to treat customers fairly should and does erode that value – particularly if publicised by you. I am delighted that this year's awards include the acknowledgment of all that the BBC's Money Programme has done over 40 years in this respect. But there are many ways of doing this: I think the financial "Agony Aunt" columns play an important role – after all, the traditional, if mythical, beneficiary of consumer protection is Aunt Agatha.
What is it that I would encourage you to do more of? My first wish would be to improve consumers' understanding of risk – in particular that investment and risk are inextricably connected. I am sometimes asked about "risk free" investments, and always reply that this is an empty class: all investment involves risk, and some failure is inevitable. The task of the FSA is not to prevent investors from taking risks, nor to confine those risks to ones which appear low (financial markets, to be efficient, require high as well as low risk investment opportunities). Rather it is to ensure that those risks are properly described. There is a strange asymmetry in the comments on firms which take extreme positions: when they are doing well, the returns are emphasised; when they are doing badly, the risks are emphasised. But the reality has not changed: the hedge fund Amaranth was clearly taking very large risks when its energy team posted profits of $1.5 billion for a six-week period in the spring of last year; that these risks materialised when it subsequently lost more than $6 billion should not have come as a surprise. If we are to extend the range of investments available – as both financial theory and practicalities require – the need for critical recognition of risk is all the greater. I hope that you will both encourage others to think about risks; and that you will assess these critically yourselves.
My second wish is that you encourage users of financial services to recognise that they have responsibilities as well as rights; that decisions on how to finance education, housing, health and pensions are unavoidable and should be faced up to; that it makes sense to think at least as long about those decisions as it does about the decision to buy a fridge, a hi-fi or a car. It is, of course, right that consumers should have access to compensation for instances when they have been mis sold or misled. But it is important that this does not lead to a belief that loss in itself is a basis for compensation; and all should understand that, if firms discharge their responsibilities properly by concisely but comprehensively describing risks, those who buy their products have important decisions to take. It goes back to my concern about financial capability. Just as you can contribute by providing information and guidance, so too you can make people recognise that, in a risky world, there are risks to be assessed.
So, you will see that I believe, for reasons that go beyond filial piety, that journalists matter; that they do much – and that there is still more for you to do. I hope the recognition conferred by these awards will encourage you all to do so.