Everything about the retirement income market is problematic. Even the name.

I don’t think I’ve written much about the so-called retirement income market before, which is odd because it’s very big, quite interesting in a difficult and complicated sort of way, and going through a huge amount of change.

Thinking about the name first, the reason it seems problematic to me is simply that it contains the “r” word (r for retirement).  I think I’ve said before how strange it seems that the industry has become so fond of this word at exactly the same time that it has stopped believing in the concept it describes.  In the world after defined-benefit pensions, the idea of “retirement” as a stage in life during which people do no paid work and live on their savings is rapidly becoming a fantasy (if you want to know just how fantastical it is, consider than at the moment the average personal pension pot at retirement is less than £30,000, which will produce an annuity income of about £1,500 a year at current rates).

But the problematisticity of the name is a small part of the whole.  Overall, what I’d like to know is where this market is going.

Although average personal pension pots at retirement are still heartbreakingly small, there are of course many bigger ones on a spectrum that stretches from the average up to, say, Fred Goodwin.  And it seems that virtually every UK life company, a growing number of foreign entrants, a few asset managers, an interesting band of specialist retirement income providers, some of the platform owners and of course a large number of advisers and other distribution businesses have their eyes on these more affluent retirees as a key strategic priority.

The range of solutions on offer continues to proliferate – first within the annuity space, and then beyond it into the still-emerging drawdown market.  Certainly the days when your only big decision was whether or not to index-link your annuity are long gone.  But it’s still very difficult to see the new shape of the market as it grows and changes.

Will it continue, for example, to be dominated by advisers?  Regular readers of this blog will both know my conviction that for most ordinary people most of the time, the role of financial advice is evaporating as fast as a raindrop on a Bank Holiday barbecue.  But maybe the retirement income decision is different, especially if an annuity is involved:  an annuity, after all, is one of the very few remaining big, important and irrevocable decisions still out there in financial land, and even a fanatical D2Cer like me does flinch a bit at the thought of consumers making their choices unaided.

Will the market continue, for another example, to be divided into a binary distinction between “annuity” and “drawdown” options?  The two are already showing signs of meeting in the middle, with annuities that offer investment flexibility and drawdown investments that offer some protection against unexpected longevity.  In the end, there is a pot of money and a whole bunch of things you can do with it to make it fit for the owner’s purposes and preferences, of which providing a lifetime guarantee is just one.  I don’t think that the existing binary choice makes much sense from a consumer perspective.

And then thirdly, and perhaps most interestingly from my point of view, to what extent will it become a branded market, and if it does then what sort, or sorts, of brand will be most compelling to consumers? As you can see from the list in my fourth para, the most interesting thing is not so much the increase in the number of players, but their increasing diversity.  To my eyes, as someone working in the industry, a choice between, say, Just Retirement, Schroders and Hargreaves Lansdown is a choice between an apple, a pear and a banana.  But will consumers, and indeed advisers, see it like that?  Will the majority of consumers even know or care?  Or will the market turn out like, say, the death-in-service life cover market, where fewer than 10% of those covered even know who their insurer is?

It’s quite fun for me to muse about these and a whole lot of other questions that come to mind in this extremely dynamic market, but of course for the providers and other organisations who are thronging into the area it’s all a bit more serious than that.  At the moment, the situation reminds me a bit of those early days in the stakeholder market where all the firms aiming to enter it had all done their sums and knew that they couldn’t make any money unless they achieved a 30% market share, so if you added together the market share targets of all the firms involved they came to well over 300%.

I don’t think there’s an equivalent hard number to dramatise the current lack of realism and excessive optimism of the players in the retirement income market.  But I think the mistakes being made at the moment are still exactly the same.


Charles Tyrwhitt and the direct-to-consumer investment industry

I’m a bit embarrassed to admit that in my wardrobe I probably have about 6 shirts, two pairs of shoes and – most recent purchase – a suit which have all come from the men’s clothing direct marketing company Charles Tyrwhitt.

None of these items is very interesting, but what’s marginally interesting is that I bought them all in so-called “sales” at prices said to be between a half and a third of the “usual” prices.

These “sales” seem to happen remarkably often, and what I suspect is that although I’m sure Charles Tyrwhitt sticks to the letter of the law about what can and what can’t be claimed as a sale reduction, the overwhelming majority of its sales are made at these “exceptionally” low prices.  In other words, I doubt if one in twenty customers actually pays the “list” price of about £70 for its shirts:  like me, they all wait till they’re discounted down to £19.99.

If that’s so, then some people (including quite a few working in financial services marketing) might ask what’s the point of such a complicated charade.  Why not just reduce the price of the shirts down to the price at which they evidently sell like hot cakes?

There are two answers, and I’d have thought that both are pretty obvious.

First we all like a bargain.  I don’t show any enthusiasm to a shirt that’s sold at Price A, or for that matter Price B or Price C.  But a shirt that’s reduced from Price A to Price B – now that gets my attention, especially if the numbers involved are £70 and £19.99.

And second, I don’t fancy a shirt whose normal price is £19.99.  Yes, it’s cheap, but cheap in a bad way – cheap as in cheap and nasty.  But a shirt reduced from £70 to £19.99 is cheap in a good way – obviously a quality product, because otherwise how could they sell it for £70, but available now – if I hurry – at a fantastic discount.

You may say that I’m dwelling too lengthily on Chapter One of the marketers’ guide to price promotion.  Maybe so.  But just at the moment there are a lot of financial services people planning their first-ever D2C initiatives who haven’t even bought the bloody book yet, let alone read the first chapter.  I do hope they do before they actually get round to launching anything.

The girls in bikinis are back in Camden Road

Just in the last few days they’ve reappeared, clustering in small group at bus stops from Torriano Avenue down to Camden Town tube.  In this miserable weather, you’d imagine they must be cold – but of course the fact that they’re 6-sheet Adshel poster images, not real people, means the weather affects them a lot less.

I’m pleased to see them again, I must say – partly because they’re undoubtedly easy on the eye, but also because when the bikini ad campaigns start to appear, you know that proper summer isn’t far away.  It is, I suppose, the swimwear industry’s equivalent of the financial services world’s annual ISA campaigns.  Except that few if any of them have ever been easy on the eye.  And all that they usually betoken is the imminent end of the tax year.

Sometimes I do wonder how – and why – I ever made the career choices I have made.

Risk rated funds: funny, people seem to have ignored my blog on the subject

“Asset managers,” according to the front-page lead story in the current Investment Week, “rush to launch risk-rated funds for a post-RDR world.”  Obviously those involved, along with 99.999999% of the world’s population, didn’t read my recent blog on the subject.

In it, I argued that processes intended to discover an individual’s “attitude to risk” (ATR in the new jargon) actually do nothing of the sort, and indeed that as far as I can see individuals don’t really have an “attitude to risk” in any meaningful sense of the term.

What they may very likely have is a temporary and almost-certainly misjudged level of confidence in the short-term outlook for the markets, and the higher this is the more likely they are to make some risky choices in an attempt to cash in. (This was the reason why lots of perfectly sensible and sober individuals piled foolishly into tech funds about 12 years ago and promptly lost their shirts.)

What they may also have is separate, compartmentalised attitudes towards the kind of outcomes they want or need from different pots of their money.  For example, as a result of the sale of my agency, I have more than enough of the very high-risk shares in the company that acquired us, so in the somewhat unlikely event that another tranche of money needed investing I’d be inclined to play it pretty safe.

And finally, what they may thirdly have is a view of their liabilities, and their overall financial position, which changes pretty dramatically from time to time and puts different perspectives around the question of what they do or don’t need from their investments.   (For example, without getting too personal about this, my earnings from Lucian Camp Consulting are a bit, how shall we put it, unpredictable:  as soon as I sign up some nice big projects I feel relaxed and confident, and start thinking of my investments as money I can afford to play with, but whenever the phone doesn’t ring for a week or so I become panic-stricken, become certain that I’ll never win a client project again and feel sure that I’ll have to eke out a living from my precious investments for the rest of my life.)

All of these, and probably dozens more, are the kinds of largely emotional, often irrational and extremely impermanent things which drive the ways that we think and feel about our investments.  I very much doubt whether any of the APR tools, or funds, so enthusiastically greeted in Investment Week take proper account of any of them at the time the investment decision is made.  But I doubt even more whether any of them will be revisited over the lifetime of the investment half as often – even a tenth as often – as they should be:  again, speaking for myself, current European political developments have changed my attitude towards investing about three times in the last week.  And finally, I doubt most of all whether any sensible investment strategy could possibly take account of such flip-flopping real-life investor attitudes.

So, all in all, I don’t think that attitude to risk is any kind of viable basis on which to make individual investment decisions, and so by definition I think that the fund groups cited in the Investment Week article are all barking up the wrong decision tree.

What tree should they be barking up?  I have some theories about that, too, which I’ll save for another blog for them to ignore in the near future.



My mystery complimenters: curiouser and crsuoiesr

You remember that piece I wrote a little while ago about the steady stream of bizarrely complimentary, illiterate and clearly East European comments that this blog is generating these days?  Since then, there have been two developments.  First, the steady stream has grown into a flood – we’re now up to 30 or 40 a day.  But much more oddly, there’s a new little characteristic to be noticed:  in almost all of these messages, there is a word – just one – in the first line of the message which is spectacularly mis-spelt.  In fact, specifically, one word made of all the right letters, but in massively the wrong order.

For example, in the 15 messages that have appeared so far today, the first lines of each include words such as spitpong, peolpe, cusctront, pofortlio, cnhage, rletsus and rlaely (respectively stopping, people, construct, portfolio, change, results and really).  Interestingly, too, in every case the first and last letters are correct, and it’s the ones in between that are scrambled – a way of mis-spelling which I’ve seen before in articles about the cleverness of the human brain, and about how easy we find it to decipher mis-spellings provided that the first and last letters of a word remain in place.

This absolutely isn’t a coincidence.  Every single one of these weird spam emails contains just one of these mis-spellings, never more, always within the first line of the message and always with the first and last letters of the mis-spelt words in their proper places.  It all means something.  But what?  I’d be most gtearufl for any ideas.

The greatest stories never told

When I think about The Most Frustrating Things You’ll Experience In The World Of Marketing And Communication, one category that comes high on the list is the stories that can’t be told, or the propositions that can’t be delivered, because of internal conflicts or obstacles.

A perfect current example is to do with Legal & General Investments’ range of passive funds.  With RDR rushing up on us – and with everyone believing that for reasons too complicate to reprise here, one of the main side-effects will be a major switch among fund selectors from actives to passives – L&GI would seem to be in exactly the right place at the right time, and with the right story to tell.  They’re by far the UK market leader – in fact, if you include their institutional money, a world leader.  They have a very competitive pricing story to tell, an excellent brand, an exceptionally comprehensive range and good existing distribution.

And yet although I don’t know what they may be doing and saying in private conversations with distributors on the subject, publicly they’re silent.  L&GI may have the strongest of hands to play in this area, but they’re holding their cards close to their chests.  There’s no sign at all that they’re aiming to build on their leading role in this market, or, more importantly, in the development of the market.  The result is inevitable:  less taciturn competitors are starting to chip away at their position.  I saw research yesterday showing that, in the eyes of financial advisers at least, the US-based quant specialists Vanguard are catching up with L&GI at great speed:  at their current rate of progress, they’ll have stolen the UK company’s perceived-market-leadership crown within a year or two.

Why does Legal & General Investments remain so silent?  For one reason, and one reason only:  they’ve been trying for a long time to build the credibility of their much smaller actively-managed fund business, and beating the drum for passive funds would seem like an unacceptable attempt to stab the active fund managers in the back (presumably with a sharpened drumstick).

In real terms, this is nonsense.  For one thing, making some noise about passives wouldn’t necessarily sabotage their active business.  It all depends on how you do it:   do Audi’s efforts to build a leading position in the diesel engine market sabotage its petrol-engined vehicles?

And anyway, more importantly, it’s just so putting the horse before the cart.  L&GI may have a couple of star active funds – the best, their strategic bond fund, is one that would be difficult or impossible to manage on a passive basis.  But I will happily bet anyone any amount of money that they’ll never be able to build upon these to the extent of establishing a reputation as a first-class broadly-based active fund manager.  And the reason I say this has nothing to do with the strength and size of their passives business:  it’s because, as AVIVA Investors and Scottish Widows Investment Partnership have both recently recognised, the asset management arms of life companies are never able to build excellent reputations as active fund managers.  They’re life company guys.  They do bonds and property.  They don’t do equity, and they never will.  (These days, the success of Standard Life Investments almost serves to disprove this proposition, but one swallow doesn’t make a summer, or there’s an exception to every rule, or whatever.)

Returning to my hand-of-cards analogy, L&GI is refusing to play the ace, king and queen of passive diamonds for fear of jeopardising the position of its active four of spades.  I can’t think of a card game where this strategy would make any  kind of sense – and I don’t think it makes any kind of sense in the funds business either.


Why aren’t financial advisers interested in giving financial advice?

Had a coffee the other day with a bloke who has recently set up as an IFA.  An impressive (some would say foolhardy) thing to do in the current environment – forcing a way back into the burning building through the crowds of people pouring out through the exits.

Needless to say, he’s taken on board all those RDR-friendly ideas about long-term relationships, defined ongoing service proposition, clear investment process and all the rest of it. And needless to say, I offered my customary words of caution, drawn from personal experience and expressed passim elsewhere in this blog, about just how much (or rather how little) there will often be for him to do for his clients, and therefore earn from them, over the years.

Unsurprisingly, he was too bullish about his new business to have much time for words of caution, so I thought I’d contribute to the general gaiety of the occasion by offering some more upbeat thoughts about ways that IFAs could add more value and maintain a bigger role in their clients’ lives.

“The thing is,” I explained, “The state of my long-term savings (which, in my case, is very largely my pension) is not a big worry to me at the moment.  Well, it is a big worry because the stock markets have been so bad for whatever it is, one, five, ten, fifteen years, but I don’t suppose you can do much about that:  I appreciate that it’s very largely a question of sitting tight and hoping for better times..

“But there are a whole load of other financial issues in my life where I really need some advice and which do worry me quite a lot right now.

“Just at the moment, a lot of them are about tax.  I only set up my own business a couple of years ago, and I’ve no idea about the implications in terms of corporate and personal taxation.  There are big-picture issues like should I take my remuneration as salary or dividends, and there are sort of medium-picture issues like give that my wife does similar work to me but only part-time and is a standard-rate taxpayer should I put her the payroll, and then there are millions of small-picture issues like when I bought a new computer recently for my French house, could I claim that as a business expense because I do quite a bit of work there these days.

“And talking of the French house, that’s a bit of a worry for me at the moment.  Both of the French presidential candidates are saying some sinister things about their plans for the tax treatment of foreign second-home owners – I wouldn’t have minded a bit of an update on this, and maybe a contingency plan.

“Then it looks as if I’ll be ending my long-standing relationship with Tangible in the summer, and that means I’ll have to rethink how I get the various benefits – PMI, PHI, death in service – that they still provide for me.  And a couple of friends who run small businesses and, like me, have several cars seem to save a ton of money through a company insurance scheme.  And now that both my kids are at uni, what should I have done about insurance for them?  And are student loans such cheap money that I should make the most of them, or is it better to pay their fees out of income?  And…”

Sorry if that was rather boring for you, but I thought it might give the newly-established IFA some kind of idea about the “ongoing financial advice and planning service” that someone like me and my family actually needs, and actually might be quite happy to pay for over the years.

Not a bit of it.  He was at least as bored as you are.  When I finished, he returned to his previous theme as if I’d never spoken.  “So you see,” he explained, “my process involves reviewing the investment strategy and the asset allocation on an annual basis, and redeploying the portfolio in line with any change in your ATR or needs analysis.”  (I don’t suppose this was exactly what he said, but while he was speaking it was my turn to tune out.)

Maybe I’m unique.  Sometimes I like to think so.  Maybe I’m the only person who thinks of his long-term savings as just one of a whole bunch of difficult, time-consuming and tiresome financial issues which he’d dearly like some help with.  Maybe everyone else sees long-term savings as a stand-alone issue, separate from the rest of their finances, which needs stand-alone service from a stand-alone adviser.

But I doubt it.  I think many – even most – real people think more or less as I do.  And it’s just another example of the fact that financial services is still the world’s least consumer-friendly industry that virtually no-one in it – not even those whose livelihood depends entirely on getting really close to their clients – seems to have noticed.

Who are these people, and why are they being so nice to me?

If I’m looking for praise, appreciation and gratitude these days (and let’s face it, who isn’t) there’s one obvious place to go:  the “comments” section of this blog.  99% of the incoming comments consist of short blasts of mind-blowing sycophancy from obscure, irrelevant and usually East European web addresses.

“Pretty component to content,” opines Biasing@hotmail.com.  “I just stumbled upon your blog and in accession capital to claim that I acquire in fact enjoyed account your blog posts.  Anyway I’ll be subscribing in your feeds.”

“Hello there,” says WichrowskiHarrop379@gnumail.com.  “I found your weblog the usage of MSN.  That is an extremely neatly written article.  I’ll make sure to bookmark it and return to learn extra of your helpful information.”

More succinctly, o.klindeaglein@gmx.net says:  “Thanks for the info, it seems as if many of the other commenters agree with what you are saying.”

And caroline.bagliotti@hotmail.com is one of my biggest fans, commenting:  “You must be trying to publish frequently, I will be very pleased with all you have to be saying.”

There are hundreds of these – literally dozens every day.  A few have a fairly clear – if seriously over-optimistic – objective.  In response, for example, to a blog of mine about tone of voice in advertising copy, replicahandbags@msn.com pipes up:  “Replica coach handbags at discount prices – http://replicahandbags.name.”  Apart from wondering what “coach” handbags are, I’m also wondering how many handbags will actually have been shifted by this rude and abrupt interjection:  I’m guessing nil, obviously.

But the majority seem to have no purpose at all, not even a stupid one.  In response to a piece about dealing with tricky clients, why does w.lakreag@msn.com say:  “It definitely would seem to be a decent overview”?  What do the programs generating this auto-praise hope to gain?  How do they work?  What’s the point?

As you can see, I have many questions, all of them unanswered.  And shaming though it is to admit, there’s one more:  knowing perfectly well that whatever these comments actually are, what they definitely aren’t is real praise, why do they nevertheless still give a tiny boost to my ego?