Few things make the financial services industry happier than
a new opportunity to shoot itself in the foot, preferably in public and in front
of as many people as possible. Coronavirus
fits the bill perfectly.
As far as I can recall, only three financial services
stories have made it onto the virus news pages.
demanding personal guarantees from people looking to borrow money under the
government-backed Business Interruption Loan Scheme.
Banks raising interest rate on some personal
banking customers’ overdrafts to 39%.
Financial institutions determined to pay out
billions in dividends to shareholders instead of meeting much more important needs.
I can see that there are good reasons for all these things. The government only guarantees Business Interruption loans up to 80%: without a personal guarantee the lender is exposed to the remaining 20% going bad. The risk rating of some personal banking customers will have increased dramatically in the last few weeks, and higher risk means higher borrowing rates. And for all I know, if public companies have announced the dividend they’re paying, they may even be legally obliged to go ahead and pay it.
It is a bit of a shame, though, that at another of those moments when financial services finds itself in a bit of a spotlight – not a very bright one, admittedly, compared to the Health Service and the food retailers, but a spotlight nonetheless – it should once again decide to confirm what a bunch of greedy, selfish, loathsome pillocks they (we) really are.
It’s extraordinary. I deal with a lot of firms on the internet – after all, it’s where I do most of my work and nearly all my shopping, look after my finances, stream and download stuff, etc etc – and in the ordinary way I don’t hear from the CEOs of the firms in question from one year to the next. But in the last couple of weeks they’ve been queuing up to get into my inbox like panic buyers waiting for Tesco to open. And I’m not at all sure they’re sticking to the rules on social distancing.
It’s difficult to say quite what it is about this crisis
that has so many big cheeses breaking cover.
A few do have quite important things to say – the CEO of Barclays tells
me Barclaycard will be waiving late payment charges for the duration, which is
worth knowing. Many are making routine
announcements – I have several from hotel and restaurant groups telling me they’re
closing down for the time being, which is worth knowing but doesn’t really seem
to require the top banana to make the announcement. And many more – probably the majority – don’t
really have anything much to say at all, except maybe that they’ll be doing
their best to keep going and will be maintaining the highest standards of hygiene. (Quite a few of the CEOs sending out this
kind of email are back in the inbox a
few days later to tell me that sadly they’re closing down for the time being.)
I suppose that a big and real crisis brings out a bit of the Winston Churchill in all of us, the para about hand-washing and sanitiser being the current equivalent of “we will fight them on the beaches.” But still, it is odd. I wrote a few days ago that I hadn’t heard a peep out of any of my financial services providers, but that’s no longer true because I have heard from at least three of their chief executives – my bank, my IFA and my motor insurer. I suppose that’s good, but in two of those three cases the CEO has pulled rank on my personal relationship manager, from whom I’ve heard nothing – there doesn’t seem an awful lot of point in having a personal relationship manager if the big boss is going to steam in the moment things get interesting.
(I interrupt this blog to say that as I write, a very long
email from the CEO and in fact also President of PayPal has just come in. It begins with the ultimate all-purpose generic
opening line “This is an unprecedented time in our history,” and goes downhill
from there, as far as I can see saying absolutely nothing at all over several
hundred words. Still, I suppose it’s
nice to hear from Mr Schulman, who’s never been much in evidence before over
the 12 years or so I’ve been a customer.)
Finally, it’s also been interesting to see how many of these
CEO messages have needed rescuing from my spam folder. It is true that my spam folder is routinely perverse
in the extreme, letting through any number of messages from the dodgiest of
scammers while ruthlessly editing out anything personal and urgent from close
members of my family. But, I have to
say, in blocking a large proportion of these scribings from CEOs’ offices, I
think it’s got a point.
Looking back over the somewhat sporadic 12 years of this
blog, there are several recurring themes. One is disappointment with the latest
performances of my football team.
Another is dislike of insurance companies, and especially their
treatment of their existing customers.
But a third – and perhaps the most frequent – is steadily-increasing
scepticism about the returns to be made from equity investment.
The fact is, if I’d started the blog earlier, the scepticism
would have reached even greater heights by now.
As it was, the earliest posts coincided with the second half of the 2007/2008
market crash. But I missed the first half
– and of course I completely missed the biggie, the 2000/2003 slump that saw
the FT-SE100 fall from just about 6,500 to 4,000 over three years.
Looking beyond these disturbingly frequent individual setbacks
and taking the long view, today the index, at a little under 5,000, is just
about exactly where it was 22 years ago, in autumn 1997, back in the first few
heady months of Tony Blair’s first term.
I know the counter-arguments – primarily that stock market
investment is all about dividends and you should think of capital growth as an
unpredictable and unreliable bonus, and also that given the ups and downs of
those 22 years people who got their timing right could have made a fortune
despite the absence of long-term growth.
But there are of course counter-arguments to the counter-arguments: get the timing wrong, which most of us do, and
you could have lost a fortune despite the absence of long-term decline. And if you got your timing really badly
wrong, you could probably still be showing a loss even taking your divvis into
All this seems a long way away from the sort of expectations
that formed in my mind during my early years in this business. For
some reason I remember ads for the Foreign & Colonial Investment Trust
which must have been running in the 80s, showing the kinds of returns you could
have made if you had invested way back in 1948.
This was, admittedly, an inconceivably long time ago, but as I recall I
think they showed that over that 30-odd year period you would have turned £1000
into a million. Over the last 20-odd
years, you’d be lucky to get your £1000 back.
I’m no economist, but even I can see that every few years the same thing happens. Just when you were starting to think that yes, maybe this is the smart thing to do to ensure my long-term financial security, bang, there we go again and all those £s you put away turn into 60 or 70 pences.
I’m not sure what the alternative might look like – we’re all so steeped in the stock market myth that none of us has even bothered to think about it But judging by the recurring theme of this blog over 12 years, it’s getting to be about time we did.
When I say “almost everyone,” what I mean is “almost every organisation with which I have any kind of digital relationship.” And when I say “emails,” I mean “emails saying something about coronavirus and their response to it.”
Quite a lot of these are clearly necessary emails. As it happens, all this has blown up at a time when the diary was unusually full of gigs, plays, exhibitions, sporting events and the like, all of which have had to be cancelled in emails from the organisers. Some others are semi-necessary – airlines and train operating companies, for example, telling me where they can’t take me for the foreseeable future.,
A great many, though, are informative and/or advisory, and not really necessary at all. Dozens are telling me that restaurants/bars/venues of one sort or another are closing until further notice. Perhaps an even larger number are retailers telling me what they’re doing to try to keep the virus at bay. Altogether, I must have received several hundred in the last couple of weeks.
One sector, though, is conspicuous by its absence. Surprise surprise, it’s financial services. I’ve never added them all up, but altogether – banks, card companies, insurance providers, pension, IFA, various fintechs that I’ve registered with as part of work projects – I’m sure I’m a customer of well over 20, and probably double that. And I haven’t heard a peep out of any of them.
What might they have to say? Well, anything and nothing. You’d expect anyone investment-related to want to a) sympathise and b) reassure. Banks actually have quite a lot to say – rather to my surprise all the big ones have new content on their homepages about how they can help people who are struggling – and could perfectly well use email to point people in this direction. The same is probably true for other lending organisations. And as for insurance, well, probably the biggest issue is the possibility of cash-strapped customers cancelling their premiums: that may not be something to raise head-on in an email,,but some more indirect messaging about the value of cover couldn’t do any harm.
Even in the few minutes that I’ve been writing this, I’ve received virusmails from my football team, a wine bar in Soho where I’ve sipped the odd Albarino,,M&S (a letter from the CEO, no less) and the online travel service Travelzoo. But the only financial services email I’ve received all day is from a robo-adviser and has the headline “Avoid paying up to 60% tax this year” – in fact a proposition about increasing pension contributions, not as you might imagine about the one upside of seeing your income plummet in the imminent virus-driven recession.
One of the themes that’s come up most often in this blog over many years and several incarnations is that for all their talk of building relationships, financial services firms only ever get in touch when they want to flog you something. It’s times like this that prove nothing’s changed.
I don’t know why I was reading a piece about WHSmith in yesterday’s Sunday Times, but I was. And somewhere in the middle it said:
” The worn-out carpets and leaking ceilings in WH Smith’s high street stores earn it plenty of critics — but not in the City. The retailer’s ruthless cost-cutting has enabled it to dish out more than £1bn in cash returns to shareholders since 2007.”
i can’t tell you how depressing I find those two sentences. Bearing in mind the fundamental tenet of the market economy, that the first responsibility of the managers of a business is to the owners of the business (i.e. the shareholders), doesn’t that tell you everything that’s wrong with such a system? And perhaps most of all, doesn’t it just detonate, and obliterate, and scatter to the four winds that ridiculous and naive idea of the virtuous circle, in which the managers do a good job for the shareholders by doing a good job for the customers? This tells us the exact opposite – give the customers worn-out carpets and leaking ceilings, and the shareholders will be happy as pigs in shit will their £1 billion of cash returns.,
I suppose it is possible that the journalist who wrote this miserable piece – Sam Chambers, since you ask – is wrong,, or at least wrong when you look at it on a different timescale. There may be a short-term win for shareholders in worn carpets and leaking ceilings, but in the longer run perhaps customers will vote with their feet and the shareholders will lose more than they gained.
I’d like to think so. Because I’d really hate to think that I’ve spent my last forty years as a cog in a machine as destructive as this one.
Few creatures have done as little to offend us as the poor old pangolins, and few creatures have been treated worse by the human race in return. If it’s true that imprisoned pangolins, on death row in the “wet markets” of China, have somehow managed to kick off the coronavirus crisis, you can’t hold back a silent cheer.
There are those who take this “nature’s revenge” explanation even further.. To believers in the Gaia hypothesis, the pangolins are just a part of a bigger theory, that the planet has run out of patience with our feeble efforts to mend our environmentally-ruinous ways and has decided to take on the challenge for us. Dramatic falls in many major CO2-producing activities – flying, sea travel, making stuff in factories, even commuting – are cleaning up our act to an extent that we’ve never managed for ourselves. Emissions in China, the world’s dirtiest nation, are down about 30% – is it a coincidence that it all started there?
Of course at the same time the effect on financial services has been pretty devastating. So far all we’ve been seeing are the shock horror headlines about tumbling markets, but that’s just the beginning. The consequences for investments of almost all shapes and sizes, and particularly for the remaining final salary pension schemes, will be extremely bloody. And I think we can also expect some headline-generating and trust-damaging headlines about which claims insurance companies are, and are not, willing to pay for.
And meanwhile, for the first time in a very long time, those poor old pangolins trapped in their wicker baskets have finally got something to smile about.
Among the many fundamental dualities of the financial world,
along with risk/reward, greed/fear, stocks/bonds, borrow/lend and all the rest
of it, there’s one that’s very specific to people in sales roles: hunter/farmer.
Actually, like many of the others, this duality exists
outside financial services too. There
are, basically, two entirely different ways to be a successful
salesperson. (There are also dozens of
unsuccessful ways. Selling is a tough
What they are, and how they differ, is fairly obvious from
the names. Hunters hunt. They love the thrill of the chase. To them, the first sale – the initial
conquest – is by far the most important.
After that, they tend to lose interest.
Don’t expect much ongoing CRM from a hunter.
Farmers farm. The
pleasure lies in nurturing relationships with a herd of clients over time. There is more pleasure in the upsell, or the
onsell – and also of course in the referral, which to them is an infinitely
better way to acquire new clients than all that rather brutish hunting.
Like all sales people, hunters and farmers need managing,
measuring and motivating. Selling, as I
say, is a tough gig. Very few people
will give it everything they’ve got unless a) they know they’re being scrutinised,
and b) they can expect great rewards for outperformance.
On the whole, “outperformance” means very different things
to the two different species. An
outperforming hunter sees more prospects, holds more first meetings, produces
more proposals, uses more shoeleather. An outperforming farmer has much more
regular client contact, buys more lunches, spends much longer on each phone
call This means that if you’re managing
a salesforce that includes both hunters and farmers, it’s difficult to come up
with a single set of metrics that works for both.
Except, crucially, for one big thing. The means may be different, but the end is
the same. The quality of both hunters
and farmers can be measured, and compared, with one brutally simple metric (in
fact, the brutally simplest of all):
value of new business written.
Which, at the end of the day, is what all that hunting and farming was
This somewhat simplistic account explains the basis of by
far the biggest and most successful sales force in UK financial services
today: the St. James’s Place
Partnership. It consists of rather over
4,000 individual sales people, skewed to some extent in favour of hunters but
with a significant minority of farmers, all motivated to achieve outstanding
performance with an escalating programme of generous rewards for value of new
Yes, you’ve read about it, the famous cruises and cufflinks.
But here’s the thing.
The cruises-and-cufflinks revelations have blown up such a shitstorm
that SJP has had to promise to take a fresh look at its incentive scheme – and
although we don’t know what any scheme may look like yet, there are good reason
to expect that it’ll be based on a much broader set of criteria. Not just new business written, but also other
measures like client satisfaction, persistency, repeat business, even
qualitative measures of client perception.
Can you see the big issue arising? It’s pretty obvious: these are farmer metrics, not hunter
metrics. They’d result in a world where
the farmers in the Partnership would be swanning off on all-expenses-paid
cruises and wearing new cufflinks daily (brooches for the ladies), while the
farmers live in a miserable world of self-funded holidays and cuffs fastened with
That’s not sustainable, and can only lead to a situation
where the hunters quickly vote with their feet and head off to other markets
(photocopiers? double glazing?) where
the skills of the hunter are still recognised and rewarded.
That could be part of a dramatic evolutionary process in
which the current hunter/farmer balance (I’m reckoning roughly two-thirds
hunters to one-third farmers, but I have no real evidence for that) gradually
skews further and further towards farmers.
In the long run, that’ll be a good thing for the company and, in
particular, a very good thing for the clients.
But as rebuilding-the-aeroplane-in-mid-flight challenges go,
that one is right up there. Good luck to
the management team who have to make it happen.
If there’s one idea that 99.9% of the financial advice industry can agree on, it’s that the key benefit enjoyed by their clients is “peace of mind.” Google financial advice peace of mind, and you get over 18 million results (and it’s not just a UK thing – advice firms are promising peace of mind to their clients in the US, South Africa, Australia, throughout the English-speaking world). There’s even a firm called Peace Of Mind Financial Planning, and it’s not hard to figure out what their brand promise might be.
But the thing is, it’s bollocks. It’s always bollocks, 365 days a year: but it’s particularly obviously bollocks at a time like this, when the markets are down about 15% in a week and it seems all too possible that it might be another 15% next week too.
Speaking entirely personally, I’ve lost more money in the last week than I’ve ever earned in a year, or to put it another way the last seven days have cost me something like ten years’ worth of pension contributions, and obviously I have no idea what’s going to happen next. It could all come back. It could go on down. It could stabilise at something like the current level (quite a few commentators are describing what’s been happening as a ”long-overdue correction,” which means they’re not expecting a big recovery any time soon).
With all of this happening just about a year after I’ve gone into decumulation, it’s a perfect example of the kind of “sequencing risk” that I’ve written about for so many clients over the five years since pension freedoms. But it’s an even more perfect example of why it’s just bollocks to promise me “peace of mind.”
Actually, I could probably come up with twenty other reasons why it’s bollocks – twenty other financial worries which, to a greater or lesser extent, furrow my brow, make my mind unpeaceful and are beyond the capability of my financial adviser to smooth away. Some of them are minor: is it a good use of £4,000 to have a few minor dings hammered out of my car’s passenger door? Some of them are quite major: what effect will the construction of four houses on the patch of derelict land next door have on my house’s value? But none of them is half as major as the coronavirus-driven market meltdown which has resulted in my portfolio losing rather more than £1000 per hour over the last week or so, along with a directly-proportional loss of peace of mind.
If I was feeling really grumpy about this, I would also point out that through this calamitous period my adviser has doggedly maintained radio silence, which isn’t very good for my peace of mind either – although to be fair, it’s a slightly peripheral part of their brand promise, appearing only in the last sentence of the Financial Planning web page which reads “Your Financial Plan will deliver peace of mind and confidence that you are in control of your financial future.” (All that sentence needs is the addition of a couple of carefully positioned “nots” and it would describe how I feel perfectly.)
I suppose there must be some evidence somewhere that people enjoy being promised peace of mind, or else there wouldn’t be eighteen million results for the phrase on Google. I can’t help thinking it would be a more worthwhile promise, though, if there was a cat in hell’s chance of keeping it.
Over the centuries, few myths and superstitions have been half as potent as those offering control over the uncontrollable. Some have promised specific, focused control: the Incas, unless it was the Aztecs, went for human sacrifice as a way to propitiate the gods and ensure a good harvest. Others have made much bigger, broader promises: organised religions stands for nothing less than control over an eternal afterlife.
On this basis, financial planning is closer to human sacrifice than to organised religion. Here, the promise is that the priestly authority figure can lead you through a bunch of rituals that will give you control over your financial future – will enable you, as so many of their websites say, to lead the future life you want to lead.
It’s a seductive idea: a little incense, some muttered incantations and a cashflow modelling spreadsheet, and as if by magic the considerable gap between your miserably inadequate pension savings and a scenario involving a large yacht and a sun-drenched Caribbean beach will be eradicated.
But there are two reasons why it isn’t actually going to work like that. The first, and more obvious, is the miserable-inadequacy issue – an averagely-sized £40k DC pension pot won’t even put you into a pedalo at Paignton.
The second goes back to the key word in my first sentence: the word “uncontrollable.” The myths I’m talking about are appealing precisely because they promise control over the uncontrollable. And that means, inescapably, that they don’t work. When it comes to guaranteeing the harvest, all sorts of complex and powerful forces in the natural world determine the climate, utterly beyond the control of any number of human sacrifices. And exactly the same is true of the world’s investment markets.
Not so long ago, my wife and I started working with a new adviser. Lovely chap, very good firm, process including all the bells and whistles, spreadsheets, bar charts, you name it. The outcome was highly satisfactory: Judy and I could afford to have a lovely time.
The trouble is, if I can switch over to a rather different kind of myth, that here in the labyrinth that represents our future, there lives a horrible, savage, murderous minotaur. He can appear, quite unexpectedly, at any moment, at any point in the labyrinth. And when he does, he will roar, and grind his teeth, and tear our financial plans to pieces. Overnight, some stupid virus visited upon us by vengeful pangolins sick and tired of their treatment in what are rather horribly known as the “wet markets” of China, will spread like wildfire round the world and reduce the size of all our lovely, carefully-planned decumulation pots by 10, 20, 30, 50 per cent. Time to retouch that dream-retirement image: anyone got a pic of a pedalo?
Of course our minotaur doesn’t always take the form of a virus. Last time it was a crash in the sub-prime mortgage market. The time before, a crisis of confidence in the first generation of dotcoms. The point is, you never know what form the minotaur will take next time, or when he will appear – or quite how much damage he’ll do to our finances.
But he will keep on appearing, and he will keep on doing damage, and all those lovely dreams in all those financial plans are all going to evaporate. And all the human sacrifices in the world are never going to stop him.