Could be Boots because its name isn’t in caps or an acronym, could be ASDA because it’s the only one owned by Walmart, but in fact it isn’t a trick question (or if it is, it’s a double-bluff trick question) and the answer is HBOS because it’s a financial institution and the other two are retailers.

Until very recently, many people – including me – would have been unhappy with this answer.  “Same difference,” we’d have said.  “What you have to understand – what we all have to understand – is that retail financial services is exactly that:  retail.  The more that High Street providers realise this, and the more they think and act like retailers, the better for all concerned.  Especially their customers.”

It was this line of thought, of course, which led to one of the most obvious similarities between the three organisations in my headline:  all three have appointed Andy Hornby to very senior management positions, the Boots appointment having been announced just a couple of days ago.

Hornby was hugely successful at ASDA, and I’m sure will be hugely successful at Boots.  But catastrophe overtook HBOS on his watch, and when it comes to figuring out why then as so often in life the simplest and most obvious explanation is the best one:  the retail approach didn’t work quite as well as we all thought it would.

It seems to me that it’s all down to that old favourite, the Law of Unintended Consequences.  True, in many ways a retail mentality makes perfect sense for a High Street branch-based business.  Adopting a sales-driven approach, and supporting it with the full range of promotional marketing techniques, seem like exactly the right thing to do.  Even more fundamentally, how can it be wrong to focus more on the customer, and his or her needs?  Surely any organisation whose main concern is to ensure that as many customers as possible come away from the store happily laden with as many full shopping bags as possible must be doing the right thing?

Well, actually, on reflection, probably not.  If it was possible simply to graft an in-branch retail mentality onto all the existing skills, values and practices of a well-run financial institution, then all would very likely be well.  But the trouble is, in prioritising the retail behaviours, you inevitably de-prioritise everything else – in particular, your compliance and your risk management. 

As virtually every High Street provider has found, it simply isn’t possible to adopt a strong selling focus without finding that you’ve also unexpectedly adopted a strong mis-selling focus.  The pressures to misbehave come to bear from the top down and from the bottom up:  from unscrupulous sales management pushing out poor-quality, over-priced and unfit-for-purpose products, and from anxious salespeople half-way through the month and way behind their targets. 

To some extent, of course, these are routine retail phenomena.  And it would be wrong to think that customers aren’t similarly mistreated elsewhere:  to choose an example that I noticed on my way into work this morning, I wonder how many of those “Free Brake Checks” promoted by tyre centres don’t result in a recommendation of expensive, essential and urgent remedial work.

But the trouble is, of course, that while fitting unnecessary brake pads isn’t going to hurt anyone, buying useless Payment Protection Insurance, or putting your savings into a high-risk fund that you didn’t want or understand and then finding your money reduced in value by 30 per cent in a month or two, or taking a loan that you can’t possibly afford to repay and wouldn’t have been offered if the counter staff hadn’t fiddled the application, can hurt very much indeed.  And what we now understand is that when these misbehaviours come to light, they hurt the institution that committed them at least as much, if not even more, than they hurt the customers on the receiving end.  And that’s why retail financial services isn’t really all that much like retailing. 

I suspect that sometime soon, some High Street players will probably make another, more balanced and more sophisticated effort – Retailing 2.0, so to speak – in which they’ll try harder to blend retail customer focus with the risk controls and prudent judgement of good financial practice.  I expect this second wave will prove a lot more successful, and a lot more in everyone’s long-term interest, than the first. 

But I’d be very surprised indeed to see Andy Hornby coming back from Boots to spearhead it.

Ever heard of a bloke called Robert Arnott?  Me neither.  But you’ll find an article he’s recently written at www.indexuniverse.com/publication/journalofindexes/articles/149-may-june-2009/5710-bonds-why-bother.html which is almost interesting enough to make typing in that insanely long web address seem worthwhile.

Basically, Arnott hurls armfuls of graphs and statistics at making the point that over all sorts of time periods – 20 years, 40 years, for some reason 109 years, etcetera etcetera – investing in equities has delivered less capital growth than investing in bonds.  Over his longest period – the 109 years from 1900 – he claims that equities have achieved an average of 0.4% p.a. more than inflation, whereas bonds have achieved a slightly less pathetic 1.1% p.a. more.

Even I can see that there is a huge statistical conjuring trick at the heart of all this, because he strips out the dividends paid on the equities while including re-invested income on the bonds.  This is enough of a cheat to cost him about 98% of his credibility.  Still, even the remaining 2% does cast some real doubt over one of the biggest ideas – arguably the single biggest idea – that has informed thinking about investment in my lifetime:  that given a long enough period of time, equity investment will turn quite small amounts of money into quite large amounts of money.

Frankly, one of the reasons we believe this so strongly is that we need to.  Somehow the circle has to be squared:  if we’re going to enjoy a good standard of living through that ever-expanding period of our lives called “retirement,” the money has to come from somewhere.

But as Arnott argues, the days are long gone when we could happily assume that in the long run, the extra risk represented by equities would be rewarded by extra returns of something betwen 3 and 5% p.a. Increasingly, as markets become more turbulent and volatile, such assumptions become meaningless - sound and sensible for someone born in one year, hollow and nonsensical for someone born a year later.

They say there are lies, damned lies and investment statistics.  I’m sure that’s true.  But in a weird kind of way, Arnott’s statistics still add substance to a troubling truth.