What my IFA needs to learn from my window-cleaner

With only two exceptions, I’m pretty sure that all the companies and individuals who provide services to my family and me have one thing in common.  The way they charge means that how much I pay bears some relation to how much time they spend on us.

This is true for our cleaners, our window-cleaner, the gardener, the people who service our various cars, my hairdresser, my solicitor, my accountant, the people who clean the parquet flooring from time to time, the decorators, taxi-drivers, the dentist, Rory who fixes our domestic IT when it breaks down, Ken who keeps an eye on our place in France, Karen who feeds the cats when we’re away and all the other countless people who do things of one sort or another, from the most mundane to the most elevated, for me, my family and my household.

These people configure their charges in many different ways.  Some provide estimates for individual jobs.  Some have a fixed-price tariff.  Some, who provide regular ongoing services, charge regular ongoing amounts.  Many, of course, add on extra charges to reflect their expenses – engine oil, floor polish, amalgam, cat food.  But in every case, their core cost calculation is basically their hourly rate multiplied by the number of hours they spend.

The same, by the way, is true for me.  I give my clients time-based estimates for my projects, and I bill to estimate.  My only extra is travel expenses: my hourly rate is calculated to cover my (fairly extensive for a one-man band) overheads, which include my office, my accountant, my PI and public liability insurance and a bunch of IT and communications costs.

I said there were two exceptions.  One, on the rare occasions I deal with them, is estate agents, who charge a percentage based on the value of the house.  I don’t love this, but I can see two points in their favour:  first, they only get paid if they sell the house so they are significantly incentivised to do so, and second, the percentage basis aligns their interest with mine.  The more they get for my house, the more they make.

The other is my IFA, and indeed it seems the large majority of IFAs.  What was until recently the normal level of commission – 3% initial plus .5% renewal – is now the normal level of adviser charge.

I suppose that from the IFAs’ point of view this is all quite satisfactory, because it means the amount of their remuneration has changed very little, if at all.  What’s more, since product providers are reporting that around 97% of advisers are taking these payments from the value of the clients’ investments, through so-called provider-facilitated adviser charging, .it seems that the format or structure of their remuneration has changed little if at all either – in fact, one way and another, it’s ever so business as usual.

As I say, good for advisers.  But not at all good for clients.  I can see no possible justification for percentage-based charging.  There is little correlation, if any, between the size of clients’ portfolios and the amount of work involved in providing a good service to them.

A client with, say, a £1 million portfolio may not actually require any new advice in a particular year, but will still pay £5,000.  Vice versa, a client with a £100,000 portfolio may need a great deal of attention:  since he or she will only pay £500 that may sound like good value, but in fact what will usually happen is that the IFA will have put the client into a low-value bucket so that the amount of time on offer will be limited and the client won’t get the attention required.  Everyone loses.

There are other strange anomalies with percentage-based charging.  To mention just one obvious example, the stock market has gone up at least 10% in the last few months:  as a result, so has the money my adviser earns from me, even though he has done nothing at all to earn or deserve it.

All in all, I can see absolutely no justification for percentage-based charges, except only that they represent a nice comfortable BAU option for advisers – which, I think I can say without fear of contradiction, was not the principle intention of the RDR.

In a recent article, that wise and perceptive observer Malcolm Kerr described such charges as a “transitional” stage in the evolution of the market towards a decent professional services model.

There’s a good deal of diplomacy in that word “transitional.”  I’d prefer something like “inappropriate, unacceptable and unsustainable.”  But I think that’s what Malcolm means by “transitional”  really.


Twenty years later, perhaps my food retail analogy is about to make sense

It must be at least twenty years ago that I came up with the food retail analogy, mainly in an attempt to cheer myself up about the potential for brand development in financial services.

I’m not saying it was original – I’m sure lots of other people came up with it too, and probably for the same reason.  But I do think I came up with it independently, rather than just nicking it from somewhere.

Anyway.  “What is it?”, I hear you cry.  “You know perfectly well,” I say.  “It’s the analogy that says that if Tesco won’t give Kelloggs a gondola-end display without knowing how much Kelloggs are going to spend on advertising to encourage consumer demand, then before too long powerful intermediaries will be asking similar questions before recommending Standard Life or Schroders.”

For nineteen years and seven months, the fly in this analogy’s ointment has been the principle – and arguably the practice – of independence.  For as long as most advisers were independent, most were genuinely indifferent to the question of consumer awareness and attitudes towards the brands they recommended.   If they presented their recommendations with enough conviction, most clients would accept that unknown Skandia was a better choice than household-name Prudential.  And if the odd client did find it hard to accept this, the adviser could always switch to Prudential anyway.  The fact is, no-one was ever able to prove that positive consumer awareness and attitudes made any difference to advisers’ propensity to recommend – and without that proof, the food retail analogy falls down like a tin-can pyramid in a sit-com supermarket.

But now look at the whole subject again in the new world of restricted advice.  As we all know, “restricted” is probably the slipperiest term in the whole slippery history of financial services, making the average skating-rink seem more gripping than the new Dan Brown novel.  (Not a good analogy – most things are more gripping than that.)  But for many firms, “restricted” means choosing one, or at most a very few, manufacturers to provide a products of a particular type.  They’ll do a deal with, say, one provider of specialised annuities, or one provider of tracker funds, or three providers of income drawdown facilities.  And what’s more, these deals will often have several years’ duration, offering the providers market access, and effectively market share, far into the future.

Big restricted advice firms negotiating deals like that will be horrible.  They’ll demand everything they can possibly think of – most of all, of course, large quantities of money in whatever forms and guises are acceptable to the regulator.  But just to be on the safe side – just to make sure they haven’t committed themselves to putting forward a brand which some clients, even if only a few, have a problem with – don’t you think they might not start asking that same question that Tesco ask Kelloggs, “So what are you doing to make my customers want your stuff?”?


Walmart may be a horrible company, but its people can’t half spell

OK, OK I admit it, it’s 10.30 on a Thursday morning and I’m doing what we used to call surfing.  (I’m not sure what we call it now.)  Anyway, I’ve found an article about how badly giant US retailer Walmart treats its staff – together with scores of comments mostly from people who used to work there – http://www.forwardprogressives.com/think-walmart-is-an-evil-empire-wait-until-you-read-this/

I don’t suppose the content of the article or the comments beneath it are very different from what you might read about an equivalent UK employer.  But what is incredibly different – and this isn’t the first time I’ve noticed this – is the spelling.  In dozens and dozens of comments from former employees who, having worked in Walmarts on minimum wage and almost literally in Pigsknuckle Arkansas, since the firm is based in that state, are presumably not among the most highly-educated of Americans, there is literally hardly a spelling or grammatical mistake.

The online comments that I read most often on UK sites are those from financial advisers on articles in the financial trade press.  These are illiterate to an astounding and infuriating degree.  I really honestly doubt if more than half of them can spell the word “independent,” even though being independent financial advisers is absolutely fundamental to their sense of who they are.  In one comment, I counted 23 mistakes in three short paragraphs.

And much as I’d like to believe that these ghastly choleric advisers fall hopelessly below the standards of the average Brit, I’m sure that in fact they don’t.  Anyone who reads Private Eye’s brilliant parody of this kind of stuff, From The Messageboards, will understand that the writing in any quantity of online comments is almost (though happily not quite) beyond parody.

I have a feeling that a growing proportion of these blogs find me fretting about phenomena that I’m quite unable to explain.  Thinking about it, I can see that this could make for unrewarding reading, since you probably can’t explain them either.  I’ll try to strike a less mystified note, at least for a while.  But meanwhile, if you have any explanations for the extraordinary superiority of American’s spelling and grammar, I’d be delighted to hear them.

Q: What would sport be without incident? A: Unbelievably successful, it seems

Nothing but respect and gratitude for the generous clients who invited me to join them at the Spanish Grand Prix at Barcelona yesterday.  But, I must admit, nothing much but slight mystification when it comes to the appeal of Formula 1 itself.

The appeal is beyond dispute.  There were 100,000 people at the circuit yesterday, and they could have sold at least as many tickets again if they had the capacity.  And people go to a lot of trouble and expense to be there:  on my easyJet flight back yesterday evening were 159 British Formula 1 fans who had flown out for the weekend and one slightly baffled Spanish businessman wondering why 90% of British people seem to be middle-aged slightly sunburnt blokes wearing t-shirts carrying the Vodafone logo.

But why?  It was a nice day, and there was plenty of cold if shockingly expensive beer available, and the circuit is a pleasant and well-organised place.  In fact, there’s only one crushing disappointment, and that’s the racing.

There are 22 cars in the race, and it lasts for 66 laps.  Given that a couple of cars had to retire, over the space of about 100 minutes a car drives past you on 1300 occasions.  On each occasion it is going very fast and is very noisy.  The order of the cars changes from time to time, almost always because unseen from where we were sitting, they go into the pits for new tyres and fuel.  From where we were sitting, we never saw one car overtake another, or crash, or break down.  After 100 minutes, the local Catalan hero Fernando Alonso won.

I can see that this was pleasing to the Catalan crowd, but in every other respect, for the large majority of the crowd, the afternoon was completely without incident.  If I wanted to sit with a beer in my hand and watch 1300 cars go past me, I could just as well go and sit outside a pub in the Tottenham Court Road.

Thinking about it on the way home, it seemed amazing to me that so many people – not just in Barcelona but around the world – could get so excited about a sport which delivers them so little by way of incident.  Then I thought two other things:

1.  This is true of other sports, and particularly those which involve racing over distance like marathon running and the Tour de France.  You go and stand somewhere, and the runners and riders whizz past you, and then you go home.  Same story.

2.  Maybe the missing element in my story is television.  While what I say about lack of incident is true for most individuals watching from most fixed positions, it clearly isn’t true of TV coverage which shows everything that happens from all positions, especially if you then cut all the interesting bit together into a highlights programme.  A 25-minute version of the best bits of yesterday’s race could make it seem pretty exciting, especially if it used only 5 minutes to show the actual incidents and the other 20 to show replays, interviews and analysis.

However, this second point only makes partial sense.  It doesn’t explain the 100,000 people who paid a ton of money to go to the race yesterday, or those innumerable gaggles of people, adding up to millions in all, strung out along the route of the London marathon or the Tour de France waiting for the athletes to whizz and whirr past them

I love sport, but I love it for the incidents – not necessarily the big incidents, like goals and wickets and aces and birdies, but the little incidents:  the moment when Dimitar Berbatov turns on his magnetic system so that the ball flies over his shoulder at great speed and somehow sticks to his right foot, or when Kevin Pietersen just lifts his chin very slighly as the spinner bowls and you know that it’s going straight back over the bowler’s head for six.

Most people sitting in most seats at most Grand Prix tracks don’t get any of that – and yet, clearly, in terms of audience appeal, it’s the only sport that gives football a run for its money.  Can anyone help me understand wny?



PPI and MPs’ expenses – two bad things with one underlying cause

To be honest, I’ve had this little observation in my mind for years, but I never thought it was interesting enough to blog about.  Then I mentioned it to someone the other day, and they thought it was really interesting, so…. well, you decide.

The thing is, I always thought that the MPs’ expenses scandal arose basically because of the political impossibility of MPs awarding themselves sensible pay rises.  With the media and large chunks of the public waiting to heap scorn and abuse on them whenever they award themselves any kind of pay rise at all, let alone one that would keep them within a million miles of other people doing difficult, stressful, exhausting and important white-collar jobs, there simply had to be some sort of compensatory mechanism to keep anyone remotely employable interested in doing the job – and being able to put in claims for duck ponds and all the rest of it was that compensatory mechanism.

(Since I’m not going to get any scorn or abuse whatever I say on this subject, I feel I should say something about just how absurdly low MPs’ salaries actually are.  In my career in advertising, not these days a very high-pay area, my salary as a copywriter overtook a backbench MP’s about four or five years into my career, and by the time I was running a rather shambolic little agency with 20 or 30 people on the payroll I was making more than the Prime Minister.  In a high-pay area like asset management, graduate trainees are making more than MPs, and if you’re not making three or four times more than the Prime Minister within ten years then you’re clearly not headed for the top.)

The basis of the parallel is of course free banking.  For  similar and similarly powerful reasons – scorn and abuse from the media and from many of their customers – banks believe they can’t charge for current accounts.  This means that they too are looking for a compensatory mechanism – a way of making up the resulting shortfall – and basically the mechanism, or mechanisms, that they’ve settled on are charging like bastards for everything else and selling you loads of rubbish products that you don’t want or need.

For MPs and banks alike, the fear of the scorn and abuse is so great that there has been very little consideration of the obvious solutions:  increasing MPs’ salaries by somewhere between 200 and 400%, and charging something like £200 a year for an ordinary current account.  I suppose if you try very hard, you might be able to see these things as positive demonstrations of the power of the media and public opinion.  To me, though, I must say – as no great friend of politicians or bankers – they looks more like the kind of bad thing that happens when you give in to the power of the mob.

Why do cyclists go to work so late?

The period between 8.45 and 9am seems to be the watershed.  Before 8.45, just a few:  after 9, shoals.  All the way through to at least 9.30, maybe even a bit later.

Tubes and buses, meanwhile, are rammed much earlier.  Buses coming down Camden Road are likely to be too full to stop from about 8.15, and the City branch of the Northern Line is hellish from 8..

I can’t explain what’s happening with the cyclists.  Do they have different kinds of jobs?  Are they different kinds of people?  Am I in fact wrong, and there’s some less-than-apparent reason why the evidence is misleading?

Don’t hold back if you have a theory to peddle.