Thank goodness, I’m still nothing like clever enough for the financial world

I’ve never met AJ Bell marketing director Billy Mackay, but I have plenty of respect for the man.  In a Money Marketing article about the new pensions freedoms, he says:

““Full-withdrawal flexi-access drawdown is two crystallisation events – one for the pension commencement lump sum element, one for the drawdown – whereas UFPLS is one.”

I’m a bright bloke, I went to Oxford, I did  English so I ought to be OK at reading things, I’ve worked in the financial services world for a shade over 30 years so I’m not short of relevant experience.  But I have absolutely no idea at all what this means.  Whereas I assume – on the basis that Billy must have said these words to a Money Marketing journalist – that he does.

Hence the respect.  And hence, also, a little surge in my constant anxiety about my ability to make any kind of sense of the world that I spend my working life in.

But also, and more positively, a little surge in my belief that there’s no shortage of work for me to do in this world.  If this is the way a marketing director expresses himself on the subject of pensions freedom  – not an actuary or an accountant, but a marketing director – then people like me, whose main role is to help ordinary people to make sense of what the industry has to offer them, should never be too short of things to do.

Can anyone explain the FCA’s attitude to attitude to risk?

It seems the regulator likes attitude to risk (ATR).  Simplified advice processes apparently consist of little else – well, apart from maybe a sprinkling of CFL (capacity for loss).  But why?  The idea that your ATR is some kind of fixed and definable reality about you, like your attitude to horror films or eating goat’s cheese, is obviously nonsense, and all the objections have been spelt out many times before.

In case you haven’t been paying attention, the main objections are as follows:

1.  Your attitude depends on the quantum.  Someone – can’t remember who – quotes this example.  There are three cards face down on a table.  You’re told that two are red cards, and one is black.  You’re asked to bet a pound that you can turn over a red card.  If you’re right, you get your stake back plus 50p.  If you’re wrong, you lose your stake.

OK?  Happy to play?  Most people are.  Now let’s play again.  Same game, but one small change – this time the stake is your house.

See what I mean?

2. Your attitude depends on the markets.  In a raging bull market, with new index highs reported every night on the news, I suspect you’ll be keener on this risk-taking lark than in a crashing bear market with the proverbial billions wiped off stocks daily.

3.  Your attitude depends on your overall financial situation, which as we all know can turn on a sixpence – for better or worse – these days.

4.  Your attitude depends on what’s happening with your family.  One day those school fees will stop – and your attitude will turn on a sixpence then too.

5.  And finally, slightly odd man out in this list, your attitude may of course be wrong.  If your answers reveal you to be, in the words of that nice old City expression, “recklessly conservative,” in remote simplified-advice services there’s no-one to argue with you:  recklessly conservative investments are what you’ll get.

There’s at least one new-wave, much talked-about simplified-advice-based online investment service that’s open for business at the moment.  It takes nine questions to identify your attitude to risk, and a few more to ascertain your capacity for loss.  However – as is the nature of simplified advice – it makes it clear that the investment recommendations it makes will take no account of any other assets you may own, and although it does offer an ISA option it currently doesn’t offer a pension option or say anything at all about tax as an issue you should consider in making investment choices.

Well, quite frankly, if that’s advice of any sort, simplified or otherwise, then as Ian Hislop once said in a very different context, I’m a banana.  Actually, no, it is advice of one sort – it’s bad advice.

The fault for this folly – let me be 100% clear – lies 100% with the regulator, and 0% with the poor bloody provider trying to steer a course through nonsensical regulation and out into the marketplace.  Why the FCA thinks nonsensical ATR definition processes are useful when they’re clearly useless, while at the same time thinking that advice which says nothing at all about tax considerations is adequate as a basis for investment decisions when it clearly isn’t…well, it totally beats me.  Can anyone – maybe even from the FCA? – explain?

The perils of LinkedIn Group-think

I’m playing a slightly bad-tempered part in a discussion group on Linked In at the moment.  (It’s here if you’re interested:

The group is all about how mass-market people can get the financial advice they so desperately need at affordable prices, and as you’d expect I’m arguing that mass-market people don’t desperately need advice, what they desperately need are financial services designed to make sense to them without advice.

No-one else in the group agrees with this.  Other contributors may have their own views about how affordable advice can be provided, but all are certain that provided it must be.  (And not just for really complicated stuff – one contributor tries to make his point about the need for advice using the example of a young family buying term assurance.)

I don’t want to repeat all my arguments against this position here.  But my overall feeling about the discussion as a whole is that it’s quite amazing how the perspectives of everyone taking part are so massively conditioned by their experience of the Advice Era during which they’ve led most, if not all, of their working lives.

Taking the proverbial step back, it’s undeniably true that pretty much everyone makes far more important, riskier and often more expensive decisions without any advice at all. They choose homes to buy, schools for their children, career paths, people to marry, and no-one seems remotely concerned about this.

But when it comes to a DC pension worth £30,000 on average at retirement. or term assurance with an average sum assured of under £100,000, people conditioned by this industry are horrified at the prospect of consumers making any kind of decision without advice.

I’m sure this is mainly because they just can’t imagine how these decisions could be simplified and brought within the scope of consumers’ capabilities (although as far as the term assurance example is concerned, they don’t have to go much further than to find out).

(I think it’s also to some extent because of what’s become an embedded fear of the regulator:  no-one cares if people choose a terrible house and make hundreds of thousands of pounds less than they might have done, but if they can’t be shown to have bought the most suitable £100k’s worth of term assurance on the market then someone’s head will have to roll.)

My own position is not as absolutist as it may appear in the group. I accept that some ordinary people may sometimes suffer from horribly complex financial problems which just don’t fit in with the simplified world I’m imagining, and there’ll certainly be a continuing need for advice to help them.  This is particularly likely for some years while people still grapple with products they bought during the Advice Era – having worked in this industry for 30 years I don’t understand my pension statements and need someone to explain them to me, and I know I’m very far from alone.  And once a range of sensible, simple, accessible, decent self-serve options are in place, if some consumers still think it’s worth it to pay the going rate for whatever kind of advice appeals to them, that’s absolutely fine by me.

I have to accept that my position does involve acknowledging that in a self-serve world, many people will come away with more or less sub-optimal outcomes.That’s what happens when people choose things.  I come away with sub-optimal outcomes all the time, whether I’m buying a leg of lamb in Waitrose or a four-bedroom house in Camden Town.  There is no consumer market in which all, or even the large majority of consumers make the best possible choices.

(BTW, there has never been an intermediary market in which all or nearly all consumers get the best possible outcomes either – a combination of intermediaries’ lack of expertise and diligence, commission bias and the sheer unpredictability of financial markets has always seen to that.)

But anyway.  As I say, I don’t want to repeat all my blatherings from the discussion group.  I just want to highlight the way that a bunch of thoughtful, intelligent, experienced participants simply cannot see beyond the way things are to imagine how things could be.

It doesn’t matter that half a dozen people in a LinkedIn group have this problem.  But it does matter that about 99% of the people in our industry do.

So much for the famous Ruislip housewives

I feel bad about writing this since my wife is a market researcher (and actually, a not-insignificant amount of the time, so am I).  But among the many ramifications of today’s General Election result, one must surely be a bit of a crisis of confidence in research findings.

OK, political polling is difficult, and multi-party elections are particularly hard to call.  But absolutely nobody got within a mile of forecasting a Conservative overall majority, even the polls that reported on the day of the election itself.

A point  which every advertising agency creative, when on the receiving end of the customary research-debrief drubbing at the hands of the proverbial eight housewives in a focus group in Ruislip, will be keen to re-emphasise.

Is this a question? Given my last half-dozen blogs, I should know.

You know the apocryphal story of the famous Oxford philosophy exam in which this famous question is said to have appeared (supposedly, some smart-arse student replied “Yes, if this is an answer” and got a first).

I don’t know about that, and I only read philosophy at Oxford for a term during which all we did was horrible boring difficult formal logic, which is like maths with letters instead of numbers, and no smart-arse stuff at all.  But maybe something from that famous story rubbed off on me, because I notice that my last six blogs (seven including this one) have questions in their headlines.

Does this display an unusually high level of tentativeness in my recent scribings?  Is it because a veteran copywriter told me yonks ago that a question in the headline makes what follows most likely to be read?  Is it just a not-particularly-spooky-or-interesting coincidence.

I don’t know.  But I do know how I’d have answered that apocryphal exam question:  “Yes, of course it bleedin’ is.  Ends with a question mark, doesn’t it?”

Impressed by all the rich diversity of our industry? Me neither.

At a time when the whole Pensions Freedom thing is creating new potential for funds that generate income, and which adopt a nice broad multi-asset approach to do so, here are the headlines* of all the investment product ads in this week’s Financial Adviser.

Delivering income profits month in, month out.*

Investec Multi-Asset Solutions.  Our solutions, for your clients’ needs.

Income, time after time.

Income IQ – empowering investors through intelligence

Built for retirement income – proven multi-asset funds providing attractive income and growth

Risk-targeted multi-asset funds are designed to stay on track

Fashion changes, style remains.

Global multi-asset income from BlackRock.

(The asterisk * relates to an Artemis ad where, strictly speaking, the words quoted appear in the copy and the headline is just the product’s name The Artemis Monthly Distribution Fund.  All the same, I think the words quoted clearly sum up the theme of the advertisement.)

Credit, I guess, to Baillie Gifford, whose Managed Fund ad headline, Fashion changes, style remains stands out from the pack., even if arguably not in a particularly good way.  The message, that the investment strategy of their fund has stood the test of time over 25 years unlike some of today’s new “solutions with funky names dreamed up by marketing gurus”, is distinctly different and agreeably assertive too.  But I do rather wonder whether the creative approach – the headline as quoted, alongside a visual of a woman in a little black dress – is instant and immediate enough to get across to time-poor advisers with inboxes piled high with clients’ Pensions Freedom queries.

Otherwise, much as I appreciate that the financial adviser trade press is a medium much closer to a village hall noticeboard than to a powerful environment in which to establish real brand differentiation, I can’t help thinking that this really exceptional degree of saminess is all a bit self-defeating.  If this kind of advertising was free, then fine.  But spending perfectly good money to be one of seven investment groups all basically running the same interchangeable copy does seem a little bit silly to me.

Election? What election?

I have news for everyone who relies entirely on financial advertising and marketing communications for their knowledge of what’s going on in the world (and, by the way, who is not a Hargreaves Lansdown customer):  there is a General Election on Thursday.  Yes.  This Thursday.  The day after tomorrow.

OK, it’s true, there are remarkably few people who rely entirely on financial advertising and marketing communications for their world news – in fact, there may not be any.  But all the same, it never ceases to amaze me how ready the financial services industry always seems to be whenever the chance arises to miss an opportunity to connect to real-life events that might loom large in the lives of its customers.

There are a couple – literally a couple – of exceptions.  One is birthdays:  since date of birth is a data field that’s often available on direct marketing lists, we find ourselves on the receiving end of grim sales-driven birthday messages depressingly often.  The other is Budgets:  I typically get half-a-dozen summaries of the new Budget’s changes, usually within a week or so, produced with great effort, stress and cost by a range of banks, advice firms and others, and invariably consigned straight to the bin because actually, guys, these days we can read these things called newspapers which tell us what we need to know the very next morning.

Hargreaves Lansdown have noticed there’s an election going on.,  The lead message on their website is headed ELECTION 2015 and follows this with the pertinent question WHAT COULD THE OUTCOME MEAN FOR YOUR INVESTMENTS?, a question to which I’m sure many of their customers are keen to know the answer.  But as for the other dozen-or-so financial services websites I’ve just whizzed round, not a sausage.  And as far as one-to-one communications are concerned, no firm that I have any dealings with – not my financial adviser, not my posh bank, no-one – has had a word to say to me on the subject.

Of course there is a difference between pre-election and post-Budget situations.  What’s going to happen after a Budget – barring a Finance Bill fiasco – is known.  What’s going to happen after an election is still shrouded in layers of uncertainty.  Still, it’s an issue.  Things have been said, even promised.  There is potential for the industry to connect with these things, to interpret them in a way that would be relevant, interesting, maybe even important for millions of their customers.  But, hey ho, sounds a bit like hard work, could lead to trouble with the regulator, probably best to ignore it – let’s stick with our usual banal copy and empty visuals (man on a bike, alarm clock,  pretty flowers, pregnant woman, man at a crossroads etc etc etc).

And then let’s look with our customary disappointment at the tracking study findings that say people don’t seem to find us very relevant to them.