Overdue but still-necessary lament

Looking back over the seven years of this blog and various other writings elsewhere, I’d say that I’ve had two big points to make about mutuality:

1.  The collapse of credibility among shareholder-owned financial institutions gave the mutual sector one last, fantastic, totally unexpected and almost-unmissable opportunity to prove their relevance and importance and rebuild their share of their markets.

2.  The managers of firms in the mutual sector are too lazy, selfish and stupid to make anything of the opportunity, and as soon as that’s seen to be so the annihilation of the sector will become inevitable.

So many thanks to the Rev Paul Flowers and his useless friends at the Co-op Bank and the broader Co-operative movement for proving me 100% right on both counts, but especially the latter.

(And a word of advice to anyone who has any money there at the moment:  get it out now, before you have to join a rapidly-lengthening queue.)

Thirty years ago, when I was just starting my career and making my first discoveries about the way things work in business, the laziness, selfishness and stupidity of senior managers in different parts of the Co-op organisation depressed and disappointed me like nothing else I could then remember.  Thirty years later, and with plenty of other disillusioning experiences now under my belt, it#s deeply depressing to realise that their successors are still topping the list.

A “duty of care.” Do we really have one? And if so, what’ll it cost us?

Having had well over 25 years to ponder Issues Arising in my world of financial services marketing, I tend to think that I’ve pondered the very large majority by now.  At an MRS conference yesterday, though, I realised that there’s at least one more chamber in the Mansion of Issues with a door that remains unopened.

The realisation occurred while I was taking part in a panel discussion about the so-called Financially Vulnerable, and specifically (this being an MRS conference) when and how research should be carried out among them.

The trickiest bit, as is very often the case, was the definition..  Should we include among the financially vulnerable any or all of:

–  The 10 million or so adults who are defined as vulnerable by the Money Advice Service because they don’t have any savings, protection, pensions and so forth and so have very little resilience to any mishap with financial implications?

–  The many million of adults who simply have very little money and so are vulnerable to the wheels falling off?

–  The equally-many millions of adults who may or may not have little money, but who suffer from a huge range of disabilities making it difficult for them to make good financial decisions:  those who can’t read or write, those who are innumerate, people who speak no English, people suffering from mental illnesses ranging from the most severe to those which are less severe but can still affect judgment, etc etc etc?

–  People who may well have a lot of money, but because they’re old, or lack confidence, or are simply silly, are too easily persuaded to make bad decisions about what to do with it by unscrupulous sales people?

–  People who have a lot of money but lack the financial interest and engagement to be at all concerned about making the most of it?

Frankly, it’s pretty hard to imagine anyone who doesn’t fall into at least one of these groups at least some of the time, so when you think about the whole Financial Vulnerability thing it’s easy to conclude that in much the same way that We Are All Individuals, We Are All Also Financially Vulnerable.

But that’s not really what I wanted to write about.  The thought-provoking bit – the unopened door – became apparent when someone asked, pretty much regardless of your exact definition of vulnerability, whether or not the financial industry has a “duty of care” to whoever you include.

Immediately, a man with an important public sector research job excitedly shouted:  “Oh yes! Oh yes! Oh yes.”  No doubt what he thinks.  But was he right?  And if so, how right was he?  And what happens when the things you’d do if you were exercising a “duty of care” start to deviate from the things you’d do as good business practice?

Start with an easy example.   A lot of French people live in South Kensington.  It would be good for them, and good for business, for a bank to install some French-speaking staff in the Harrington Gardens branch.  But that certainly doesn’t mean that all branches of all banks should be able to speak to customers in all languages.  It would be ridiculous to demand a Tagalog or Swahili speaker in the Bridlington branch just in case someone from the relevant parts of the Philippines or East Africa dropped by.

Take a less visible case.  If a customer suffering from a mental illness is incapacitated to the extent that they can’t cope with making mortgage repayments, you’d expect their lender to respond sympathetically.  But what if a customer suffering from depression gets some relief from horribly expensive spending sprees?  Does a “duty of care” mean that when a credit card company notices a customer bulk-buying Louboutins again, it should decline the payment and tell the customer to see their GP?

Or – just one more, and then we’ll move on – say that a credit card company is researching the potential for contactless payments cards among its customers.  First question:  should they specifically include people who have serious debt problems among the research sample?  And second question:  what is the company to do if it finds that some of these people are likely to use the cards irresponsibly?  Should they scrap the project altogether?  Should they adopt a tougher credit scoring system so that the new cards are less widely available than the old ones?  Or should they simply offer the new cards to anyone who isn’t in arrears at the moment?

The more I think about this, the less I’m convinced about this “duty of care” thing.  When good customer care is in line with good commercial behaviour – the French staff in South Ken – there’s no problem.  But when maintaining a duty of care involves significant extra expense, and/or much more intrusive and paternalistic behaviour, there’s a limit to what you can reasonably expect from a commercial organisation.

 

 

For all that telling, Sid’s still not doing much

This is one of those stories heard under Chatham House rules and so a little unhelpfully anonymised here.  The presentation I saw was from the boss of one of those new-wave online private investor services that’s launched in the last couple of years.  And his most interesting point was that whereas they had initially expected their customer base to consist of about 50% experienced investors and 50% newbies, the actual proportions some 18 months on are more like 99% and 1%.  Inexperienced investors, once again, have voted with their feet, or in this case with their mice.

Which raises the question:  what does it take to get some of those Sids* off their arses and into some reasonably serious investments?

One technique that definitely seems to work is auto-enrolling them, but unfortunately that’s not an option outside workplace pensions.  Otherwise, as I’ve written here on previous occasions, I think the only winning formula might involve being simultaneously very visible, very engaging and very, very simple – a formula which I don’t think anyone’s really tried yet perhaps on the grounds that it would be really expensive and really difficult.

I wonder when, if ever, someone will be brave enough to give it a go.

 

*:  For those of you too young to remember, Sid was the unseen focal point in the massive British Gas pre-flotation campaign of 198-something.  Sid represented the private investor, and whatever the message was, in whatever medium, it was framed as a message to be told to Sid.  Thus:  “Tell Sid the deadline for applications is next Friday.”  Or:  “You can apply for up to £1000-worth of shares.  Tell Sid.”

This was an extremely good – I’d say brilliant – unifying idea for a populist campaign needing to deliver various nuggets of more-or-less timetable-based information.  Indeed, I can’t think of a better example – which probably explains why we’re still talking about it (or at least I am) very nearly 30 years later..

Sod the consumer, let’s just concentrate on the FCA

I’m working on a new product which I can’t say too much about.  But for one of its applications – one which offers particular benefits to consumers – we need a business partner from another part of the industry.  Yesterday afternoon, we had meetings with three candidate firms.

I was expecting to enjoy this a great deal.  Although the subject of the discussions wasn’t the most gripping, being on the other side of the table during what’s effectively a pitch process is still a wonderful novelty for me.  But in fact, to be honest, it was pretty grim:  and for only one reason.  I’d say that 80% of all the discussion across the three meetings was about what would and what wouldn’t be acceptable to the FCA.

You’ll have to take my word for it when I say that nothing about the new product is controversial in any way – or at least in almost any way.  The one thing which is by definition controversial is that the product is different from anything currently on the market – and being different is a very, very tricky thing to be.

Some of the apparent regulatory issues are infuriating.  Others are simply farcical.  One of the potential partners expressed the view that the FCA wouldn’t like my clients partnering with a single firm, and would be much happier if we partnered with three and offered them to our clients as alternatives.  When asked how we should decide which partner to put forward to each client, the firm suggested that the best way might be by rolling a dice.

I’m sure I’m wrong to say this, but by the end of the afternoon I’d personally come to the conclusion that we’d be better off launching without the application for which we needed the partner..  Three hours of regulatory aggravation had pretty much eradicated my desire to do something new and customer focused.  In fact, my colleagues were made of sterner stuff and the project lives on.  But if three hours of regulatory issues is enough to kill my pioneering spirit, imagine how many thousands of innovations and innovators have lost the will to live when faced with the nightmare of Canary Wharf.

There are many things the regulator does which are necessary and important.  But the FCA pretty much annihilates the desire to innovate, and also the desire to communicate in a way which consumer can make any sense of.  And in those two respects alone, the regulator becomes the most dangerous and destructive agent of consumer detriment in our industry today.

The great George Stubbs and BlackRock’s advertising campaign

I can’t remember what the news angle was, but last week two pictures by the great 18th century artist George Stubbs attracted a lot of media attention.

Stubbs is most famous for painting horses, but these were of other animals, both Australian –  one a kangaroo, the other a dingo.  At first glance both pictures looked terrific, but on closer examination there was something not quite right about them.  The kangaroo’s shoulders were oddly narrow, the dingo’s legs a bit too long.

There was a reason for these slight inaccuracies.  Stubbs had never seen a real kangaroo or a real dingo.  All he had to go on was a shrivelled roo skin, and some rough sketches and notes made by a member of Captain Cook’s crew on his voyage of discovery in the 1760s.  Considering these circumstances. the pictures are extremely impressive.

When I saw them, a financial services advertising parallel came quickly to mind.  The pictures reminded me strongly of those strange, rather disconcerting portraits of various investor types featured in the current BlackRock campaign.  At first I had thought that perhaps these people looked so odd simply because they were Americans.  But seeing the Stubbs paintings, I realised that the problem was the same:  those responsible for the portraits had never actually encountered a real investor.

Of course, in the world of asset management this is far from unusual.  Few firms even recognise the existence of real investors, let alone ever actually meeting any.  They live in a solipsistic, inward-looking world where the closest they get to meeting actual clients is addressing their advisers at roadshows and seminars (and even this more than a little grudgingly).

As a result, the kinds of visuals that they favour in their advertising and marketing are similarly inward-looking.  Their favourites, as I’ve said many times before in this blog, are self-aggrandising analogies for the abilities of their fund managers – visuals proposing that they’re as intrepid as golden-age explorers, or have powers like those of Marvel comic superheroes, or play together in high-testosterone teams like top rugby players, or rule the investment jungle like lions and panthers.  Or, of course, at a higher level of abstraction, self-aggrandising analogies for the strength and solidity of their companies – mountains, planets etc.

Against this background, it’s brave of BlackRock to attempt a series of portraits showing what they think their end-investors might look like – but, I’m afraid, not brave in a good way.  Their strangely over-coiffed and waxen appearance tends to repel rather than attract:  speaking for myself, I’d prefer to stick with the ones likening themselves to Greek gods, or Catholic saints, or Nobel prize-winners, or whatever.

 

Seems the economies of scale are smaller-scale than I thought

I’ve always been told that scale almost always delivers economies – and nowhere more so than in banking.  They say that First Direct, for example, may offer great service and may have nice low costs without any branches – but with only a couple of million customers, it’s never made any money and is able to continue only by sharing more and more resources with its parent HSBC.  If you didn’t have, I don’t know, 4, 5, 6 million customers, then forget it – you weren’t in the game.

Things seem to have changed.  At a regional banking conference this morning, I heard that no fewer than 21 start-up banks are seeking approval from the regulators, most of them looking to follow in the footsteps of the “hugely successful” Metro Bank, which three years after launch has 230,000 customers.

All this comes as a complete surprise to me.  The Metro Bank figures, in particular – 230,000 customers, 20 branches, 700 staff – are a complete eye-opener.  Can they be making money on those numbers?  Say that the employment cost of the 700 staff averages £30,000 p.a. – that would give a total payroll cost of £21,000,000, which works out at just under £100 per customer.  And then of course there are all those property costs, and IT costs, and costs of capital, etc etc etc.

If Metro Bank can indeed make money on those numbers, then it’s easy to see why 21 start-up banks are looking for authorisation.  Hell, if Metro Bank can make money on those numbers, I think I might put in a submission myself.

But I have to say, it’s all the absolute opposite of the story I’ve been hearing from the economies-of-scale faction for the last god-knows-how-many years

Blimey. Seven years’ worth of blogging. No wonder I’m mostly repeating myself.

I frequently make the point that for consultants like me, our best friend is change.  It’s change that creates almost all my opportunities – because it’s change that makes clients scratch their heads and wonder if they ought to get a bit of external help on this one.

It’s equally important – maybe even more so – for bloggers.  We have to write about something.  This is easy in the early days, because we haven’t written about anything yet. But once we’ve covered off all our favourite subjects – pointlessness of financial education, ghastliness of the regulator, reluctance to pay Ongoing Adviser Charge, continuing lack of connection between Tottenham Hotspur midfield and attack, etc etc – we need change.  Without it, we’ll soon start repeating ourselves.

Truth is, in my experience, even with a good deal of change we’re likely to start repeating ourselves sooner or later.  On 29th September, for example, I was pleased with the para I wrote saying that requiring “YOUR HOME IS AT RISK…” warnings on mortgage posters is like requiring a warning on posters for luxury hotels saying “OUR TRIFLE MAY CONTAIN NUTS.”

But going back just now, in the month of this blog’s seventh anniversary, to remind myself what I wrote in the very first entry in November 2006, I find…

…you guessed it, a certain analogy between mortgage and luxury hotel health warnings.  I must admit, I’m amazed I’ve had that idea in mind for so long.

Anyway, in the very unlikely event that there’s anyone who’s actually been reading this stuff for all that time, my apologies for the repetition.  And more apologies in advance, just in case it comes round again in 2020.