Come on everyone, I’m asking the audience for some help here

As RDR implementation draws ever-nearer, some ideas about it already seem to be established as facts on the newly-ploughed-over ground.  First among these, I’d say, is that post-RDR, IFAs won’t be able to service low-value (= lower net worth) clients profitably, and so will need to bring their relationships with them to an end.

I must admit, I’m not really understanding any part of this.  As far product-sale-related income is concerned, I don’t see why advisers can’t charge more or less exactly the same amount under adviser charging as they can at the moment as initial commission.  If they are prepared to provide a modest level of ongoing service, I don’t see why they can’t take an annual service fee of, say, .5% per annum, the same as they currently take in trail commission.  And if they’re not prepared to provide a modest level of ongoing service I can see that they won’t be entitled to take an ongoing adviser charge, but then again they won’t have any ongoing costs to cover either.

Given that most advisers don’t provide any ongoing service to most low-net-worth clients, it is true that they won’t still be able to sneak thousands of pounds out of the value of their clients’ investments by taking years and years of trail commission in return for doing precisely the square root of sod all.  But if they’re really saying that it is only this indefensible practice that enables them to serve lower-net-worth clients at the moment, then as far as I can see the sooner this perverse and dishonest market is reformed and replaced with an alternative that doesn’t rely on chicanery and concealment, the better.

I entirely accept that I may well be missing something here – and if so, I’d be very pleased if you could let me know what it is.

Have you ever noticed how one word can mean two different things?

Actually, I think one word can mean up to about 28 different things (someone told me once that “jack” is the word in the English language with the largest number of completely different and separate meanings).

Five minutes from home, there’s a rather bleak-looking Chinese takeaway, its austere exterior partly redeemed by what’s always struck me as a rather charming name.  It’s called Swallow House, and swallows are such lovely birds, aren’t they, flitting round the eaves in the summer evening twilight.

“What a horrible name for a Chinese,” a friend passing by said recently.  “You might as well call it The Chewing Place.  Or Mastication Centre.  Or Digestion Palace – yes, I think that’s it, Digestion Palace.”

I couldn’t answer.  It had never occurred to me that it meant that kind of Swallow.

Where surrealism meets anti-terrorism (outside Pret at Victoria)

If I ask you to imagine a heavily-laden litter bin, I don’t know exactly what will come to mind – but I’ll bet it’s some sort of container, cylindrical, square, rectangular, with a lot of litter inside it.

Not if you’re standing just outside Victoria Station, it won’t be.  In that case, what you’ll be seeing is a much more Marcel Duchamp-esque deconstructed approach, featuring two or three very large wheelie bins with lids locked shut and items of litter in great profusion balancing precariously on every horizontal or near-horizontal external surface.

The reason the lids are locked shut is that as Magritte might have said, These Are Not Public Litter Bins.  They belong to the Victoria branch of Pret, and I suppose that if they didn’t lock them they’d fill up with the public’s litter and there’d be no room for Pret’s.  And the reason why the public are so keen to use Pret’s bins?  There are no public litter bins at Victoria, or at any other major London station.  And the reason for that is not entirely clear, but it’s something to do with anti-terrorism.  (If I tell the full story you’ll go to sleep, but an IRA bomb went off in a station litter bin 20 years ago, and since then there’s been a sort of off-and-on ban on bins.)

Banning the bins must be the stupidest anti-terrorism strategy of all time.  Can we really imagine any terrorist, or group of terrorists, planning a major London bombing campaign based around putting bombs in station bins, heading out on an initial recce, finding that there are in fact no bins available at the stations and seeing no alternative to abandoning the whole enterprise?

But I don’t really think it’s the stupidity of the strategy that interests me.  It’s more the way people react.  People generate a lot of litter at railway stations.  What do they do with it?

One segment, clearly, consists of people who just chuck it on the ground.  Another group, less visible but more virtuous, take their rubbish away with them and chuck it in the bins that are readily available nearby.  (If the disappointed terrorists left Victoria Station and walked 50 yards to Victoria Street, they’d find a major shopping area thronged with people and offering nice conveniently-located bins every 20 yards or so.)  And the third segment – very likely the biggest, I reckon – consists of people who don’t want to chuck their litter just anywhere  but equally don’t want it clogging up their bags and pockets:  looking for a third option, and finding there are no open bins, they decide that the least bad course of action is to balance it on the lid of a closed bin.

In fact this isn’t a particularly good option, because when the Pret staff come out and unlock the bins and open their lids, all the balancing rubbish falls off and falls to the ground, where the Pret staff leave it because clearing up other people’s non-Pret rubbish isn’t in their job descriptions.  But although it’s actually the wrong thing to do, it’s a well-meaning thing to do.  It’s what you do if you’re a person who wants to do the right thing, but can’t see how to.

I suspect that a lot of what we think is bad behaviour is actually of this wrong-but-well-meaning kind, not least in the field of financial services.  I am unpopular with my health insurer at the moment, for example, because I’ve had a couple of sessions of physio on my dodgy shoulder without getting authorisation first.  This, in the health insurer’s eyes, is bad behaviour.  But it isn’t really.  For one thing I didn’t know how many sessions had been authorised, or how many I’d had.  But much more importantly, worrying that I might be nearing my limit, I’d called the call centre three times but on each occasion, during a busy working day, my call had been unanswered after 20 minutes and I’d simply had to hang up.

Making those calls, getting no reply and going ahead with the physio anyway strikes me as pretty closely analogous to looking for a bin at Victoria, not finding one and balancing your Upper Crust packaging on top of Pret’s bin.  A lot of the time, a lot of us don’t really want to break or even bend the rules.  It’s just that the people who make the rules don’t seem to give us an alternative.

LAISANB. Or is it?

I’ve just received the speaker evaluation report from the protection conference I spoke at last week, and, false modesty aside, it’s come out quite well – 4.4 out of 5, with fives from 61% of those present and fours from 22%.

I must admit, I’m slightly relieved.  This was one of my more provocative conference presentations, and while I was making it there were moments – as I looked out across a sea of stunned, open-mouthed faces – when I really did seriously wonder if I’d gone too far.  Apparently not, or at least if so then only for the 4% who gave me two out of five.

But as well as being relieved, of course I’m pleased too – and what’s particularly pleasing is the level of enthusiasm in the light of the theme of my talk, which, as I say, was a not uncontroversial one.  Now that you know the theme of the conference was protection, have you decoded “LAISANB” yet?  Obvious really – it stands for the No.1 irritating catchphrase of the industry for these last 20 years or so, the maddening and ridiculous Life Assurance Is Sold And Not Bought.

The bundle of ideas wrapped up in these few words – that consumers will not in any circumstances make a positive decision to buy protection products, that therefore there’s no point in wasting time and money promoting them, that the only approach worth considering is one that’s focused around relentless and manipulative salespeople, that the salespeople need the motivation of being able to earn huge sums of commission, etc etc etc – embrace virtually everything that’s wrong with the protection market.  That’s why I built my whole presentation around an attack on this toxic expression, arguing a) that it isn’t true and also, for good measure, b) that even if it was true, which it isn’t, it would only be true because we have chosen to organise the industry around a hard-sell approach and we could perfectly well un-choose this option, and choose to organise it around a consumer self-service model, any time we like.

But here’s the interesting thing.  I was on at around 2.30 in the afternoon, and having been at the conference since it began at 9am I fully expected that by the time I spoke, I’d be able to cite a large number of expressions of LAISANB in the presentations made by other speakers earlier in the day.  Not so.  In fact, by the time I spoke, only one other speaker had told us that LAISANB.  That was the conference producer introducing the event at the start of the proceedings, and since she isn’t actually a protection industry person she doesn’t really count.

It may, of course, have been nothing more than a coincidence that about six or seven consecutive protection industry conference speakers in succession all avoided any mention of LAISANB.  But judging by the standards of every recent event that I’ve attended, it would be a very remarkable coincidence indeed, a bit like Lionel Messi playing seven games in a row for Barcelona without scoring.

No, I reckon that my timing was probably off.  All of a sudden, people in the protection industry have stopped saying LAISANB because finally – belatedly – they’ve realised that it’s nonsense.  As a result, I’m afraid that I wasn’t really ahead of the curve at all in my presentation – I was just agreeing with what they’d already recently decided.  Which is fine as far as getting a good evaluation score is concerned.

Just not quite so good when it comes to actually having any influence on anything that anyone thinks or does, that’s all.

Why I’d really like to introduce Jon Moulton to my sister

Not for any romantic reasons, that’s for sure.  I have no doubt they would detest each other – Moulton as about the rightest-wing economic hawk that I’ve encountered (at Tuesday’s Financial Services Forum conference) since Milton Friedman in the heyday of monetarism, and my sister as a programme manager in the housing department of the currently-merging Kensington & Chelsea, Westminster and Hammersmith & Fulham councils.

No doubt Moulton would argue, as he did on Tuesday, that the only chance of restoring the health of the UK economy is to make massive, immediate cuts in public spending.  Actually, at his bearishest, he would claim that there is now no chance of restoring the health of the UK economy because the moment at which such cuts could effectively have been made has now passed.

My sister wouldn’t talk about high-level economic theory, but she’d probably talk about the range of services delivered by her council that are being smashed up and abandoned as cut-seekers prowl the corridors.  (For example, she tells me that local authority departments and other authorities including the police and social services still have the same responsibility to liaise with each other and share information about vulnerable people, but all the bodies and structures that were designed to achieve this liaison have now been dismantled so that there isn’t any.  At some point in the next few years there will be another Victoria Climbie, and that’ll be why.)

Jon Moulton is a very clever, rich and successful man, but actually it’s him that doesn’t get it.  He’s still maintaining an unsupportable belief, that if only we can make enough cuts we can restore the UK to its former position as an economic powerhouse in which he and other entrepreneurs like him can make vaster and vaster fortunes indefinitely and, bobbing along in the wakes of these titans, ordinary people can enjoy ever-improving quality of life too.  It’s not like that any more.  If he wants to live and work in parts of the world where he’ll find those conditions, he needs to head for Asia or Latin American or Eastern Europe.  Here, and in most of the West, we’re into a long-slow twilight, and the question – which, it should be said, no-one’s really discussing – is really about who should feel the cold and the darkness first.

Perhaps unsurprisingly, his view is that capitalist billionaires should maintain their places in the sun for as long as possible while poor, tormented children should be cast into the darkness.  Perhaps unsurprisingly, and on behalf of my lovely sister, I want to object to his infinite greed and selfishness in the strongest terms I can muster.

Worth the price of a ticket (especially since it was free)

An enjoyable conference presentation yesterday by Steve Casey from BUPA.  Full of good quotes from famous people, even including a couple of Henry Fordisms that I hadn’t heard before.  But the one with an absolutely authentic cordite-and-gasoline flavour of the advance across Europe from the D-Day landings came from that tough, ruthlessly pragmatic and effective general Omar Bradley:  “Amateurs talk strategy, professionals talk logistics.”

If that’s good enough to get you from Omaha and Utah beaches to the rendezvous with the Russians at the Elbe, it’s good enough for me.

Please can we leave the future of UK plc till I’ve got my prescription?

As my good and perceptive friend Surrey Garland pointed out to me, a funny thing has happened to tube card advertising:  it has now become very largely an environment for rather personal campaigns on slightly awkward subjects like stress incontinence, online dating, condoms, vitamin pills and hair loss.

This being so, campaigns not fitting this pattern can look out of place, and arguably not many more so than Surrey’s own lobbying campaign for Heathrow Airport, proposing that the UK economy needs a bigger, better, more successful Heathrow and so that it should obtain more government support.

The campaign expresses this idea in elegantly-written typographical ads, with large display headlines saying things like The Road To Recovery Isn’t A Road.  It’s A Flightpath. 

Nothing wrong with the strategy, or indeed the headline.  It’s the environment that’s the worry – rather as if a chauffeur-driven Jag pulled up outside a crowded GP’s waiting room, from which a pin-striped chief executive took up a position among the incontinent, balding, vitamin-deficient patients to make his pitch for more government funding.

It may be very clever media buying – who knows, that bloke sitting in the corner with the anxious look and the thinning barnet may indeed be the Minister of Transport.  But among the current crop of tubecard advertisers, it’s certainly a rather odd-looking one.

Fiduciary. Not sure what it means, but I reckon it matters.

Spent Thursday evening and most of Friday on the receiving end of presentations given under Chatham House rules.   Not sure what happens if you break Chatham House rules, and I don’t really want to find out – are there Chatham House Rules Enforcement officials?  Chatham House courts?  Chatham House prisons?  But think it’s probably OK if I just say that afterwards, I find myself in compare-and-contrast mode between Thursday evening’s after-dinner speaker, an extremely self-congratulatory bloke from a big general insurer specialising in motor, and one of Friday’s speakers, the admirable Dan Norman making his customary remarks about the greed, dishonesty and general uselessness of the fund management industry.

Dan’s big theme is that the fund management industry rips us off left, right, centre, up, down, sideways and backwards because nobody in any part of it has what he calls “fiduciary” responsibility for its customers.  I’m not at all sure that I know what this means, and a quick trip to Wikipedia hasn’t helped much (also, given that whatever it is, 85% of retail investments are advised by IFAs, I can’t help wondering why they don’t do this fiduciary thing for us a bit better), but whatever it is I’m pretty sure there isn’t much of it around in general insurance – and especially motor – either.

After all, as I’d been musing rather grumpily while the self-satisfied bloke was speaking, this is a part of the financial services industry where, astonishingly, standard operating procedure is to fleece your most loyal customers so thoroughly and so relentlessly that when they finally decide to shop around and realise how much money has been stolen from them, they turn instantaneously into infuriated ex-customers who promise never to insure with you again even if you become the only company in the market and the only alternative is to give up driving and crawl to their destinations on their hands and knees.

It’s the part of the industry that pays out miliions (probably billions) in bogus whiplash claims every year, knowing perfectly well that they’re bogus but not caring because they can pass the cost straight on to policyholders.

It’s the part of the industry that routinely and happily pays out ludicrously padded and inflated costs to their networks of repairers, for exactly the same reason (when I recently explained to a large repairer in my area that I’d be paying personally for the job I’d asked them to estimate for, the figure suddenly came down from £4,000 to £1,200).

And perhaps most extraordinarily at all, it’s the part of the industry that sells the detaIls of accident victims to ambulance-chasing law firms so that they can pursue the bogus whiplash claims I was just mentioning.  (This sounds like commercial madness, but actually it works fine – the insurance companies pocket the referral fees, but the costs of meeting the claims are paid by the policyholders.)

If you’ve heard Dan speak on the subject of fund management, you’ll know that by the end of his talk it seems like one of the very least wonderful parts of the wonderful world of financial services. If he ever gets bored of giving that talk, I’d quite like to hear him turn his attention to motor insurance.  This is of course unlikely, because Dan’s business is to provide a more ethical and lower-cost alternative to other fund managers, not to other motor insurers.  Still, whatever this fiduciary stuff is that he says the fund managers are lacking, I don’t reckon he’d find much more of it in the general insurance sector.

 

Have the NEST chaps over-egged our expectations?

It looks as if they think they have, at any rate.  In my last blog I let off some steam about a silly comment from one of their team at a biggish industry seminar/update session which they laid on yesterday.  Today I want to say something about the event as a whole, which I must say was a very downbeat one – so much so that I couldn’t help wondering whether the NEST management team was worried that we were all getting a bit too excited about their prospects, and thought it was time to start managing our expectations sharply downwards

A good deal of the event consisted of presentations of very bearish research among NEST’s target market, all of which said that people are very gloomy, anxious and short of cash at the moment, that they really haven’t got anything much in the way of “spare money” and if they had they would have many more urgent and important things to do with it than locking it up for decades in a NEST account.

It’s true that with the roll-out plan starting this autumn among a small number of big companies but then spreading gradually across the private sector over the following four years, a lot of NEST investors will have plenty of time to change the way they feel before they’re actually asked to part with any cash.  When it comes to the way people feel about life, four years is a lifetime, so to speak – after all, if you think back four years from here, in March 2008 we hadn’t even really started to feel bad.

But having said that, on the basis of the research we saw yesterday, it is difficult to imagine members of the target market queuing round the block to put their money in.  More likely, I’d imagine, they’ll take a good look at it, accept that it’s a reasonably good thing and then, in disappointingly large numbers, decide that the best thing to do is to opt out for a few years and then take another look at it – at a time when maybe they might have a bit more of that illusory “spare money” that would make everything so much easier.

Infuriating comment about shoes

I’ve been working over the last day or two on a conference presentation which includes one of my favourite rants – the one about how I hate the way so many people in the industry imagine that consumers lead lives of feckless irresponsibility and spend all their disposable income on bottles of Bailey’s and haircuts and packets of fags and Bingo when they should be spending it on sensible and important things with deferred but essential benefits like life assurance.

In the full-scale rant I refuse to accept pretty much every component part of this argument, including the idea that life assurance is necessarily sensible and important, or that its key benefits are deferred, or that they’re essential for most people. But for the purposes of this blog let’s concentrate on the most infuriating part, which is the “feckless irresponsibility” part.

It’s always seemed to me that a frighteningly large number of people working in financial services believe at least to some extent in this preposterous idea – and at another conference this morning, I saw clear evidence of both the preposterousness and the prevalence of it.

The conference was to do with pensions reform and specifically the role of NEST in providing a pension solution for the low-paid – and so one of the points under discussion, inevitably, was whether low-paid people would choose to put money into pensions or to go and spend it on bottles of Bailey’s, haircuts and so forth.

On the one hand, an American academic spoke – very movingly, actually – about how many low-income American parents had struggled desperately to put small sums of money into a government-backed dollar-for-dollar matched savings scheme to save as much money as they possibly could, not for magnums of Bailey’s or elaborate haircuts but for the education and healthcare of their children – financial behaviour that was about as admirably and heartbreakingly unfeckless as you could possibly imagine.

And then, in a presentation of research findings among UK low-income families, one chart showing what people would choose to do with any “extra” money featured the usual earnest, well-meaning and anxiety-revealing list – family holidays at the top, followed by home repairs and improvements, car repairs, paying off debts, buying clothes and shoes and, in about sixth place, saving for the future.

No problem with that.  But big problem with the researcher presenting the chart, saying: “You can see people aren’t very interested in saving for the future – it’s so far down the chart, it’s even below shoes!”  Titter from middle-class suit-wearing audience as we imagined poverty-stricken chavs with no savings rushing out to buy new Louboutins at the first sign of a few spare quid.  But I wouldn’t mind betting – the chart didn’t say – that most of those “clothes and shoes” were bought for kids, not for grown-ups.  And if my kids’ clothes were in holes and their school shoes had been pinching for months and I found that I had a few spare quid for some reason, I think I just might spend the money on new things for them rather than locking it away in a pension where it might or might not be worth anything when i was finally allowed to get my hands on t 20 or 30 or 40 years down the track.

If it was me, I’d take the person who presented that chart in that way off the NEST project immediately:  in that one insulting remark, he showed us beyond doubt that he doesn’t get it and doesn’t belong there.  And I’d give a yellow card to the titterers in the audience:  one more stupid and patronising response like that, and you’re out too.

I can’t do any of that, but I can wind up the heat in that conference rant I’m preparing.  How long will it take for some of us to shed some of our arrogance, and stop thinking of our customers as self-indulgent fools?