Lucian’s blog

Imagine the retail investment marketplace as a circle.  Say, for the sake of argument, that at the 12 o’clock position we place the fund managers;  at the 4 o’clock position we find the life companies;  and at the 8 o’clock position there are the IFAs.

Here’s the funny thing:  working in a clockwise direction, it seems that just at the moment each kind of organisation is eager to transform itself, in terms of perception at least, into the next one along.

The fund managers are starting to want to be perceived like life companies.  In a world of commoditised wrappers, they think that being seen merely as an investment “engine” within someone else’s car doesn’t make sense any more.  Increasingly, the bigger and more retail players are beginning to toy with those bigger-picture, more emotionally-based brand positionings historically owned by the life companies - an area perhaps most quintessentially summed up in the strapline used for a short while some years ago by the doomed UK life operation of the Australian firm AMP, “creating better futures.”

Meanwhile, in what seems to me a newer and more surprising development, life companies are starting to want to be perceived like IFAs.  Recognising that in a post-platform, post-RDR world their existing role as “product providers” won’t make much sense any more, some are gradually coming round to the idea of becoming IP-driven businesses, having the know-how to design appropriate solutions for consumers.  The most IFA-like are already developing plans to deliver this know-how direct to consumers, mainly via the internet.  Others still intend, for the time being at least, to work alongside “proper” IFAs.  But either way, the key change is that providing the “product” becomes a much smaller challenge than designing the solution.

And then, down there at the 8 o’clock position, some of the biggest and most successful IFAs are starting to behave more and more like fund managers, managing money in line with clients’ instructions and guiding the clients on formulating those instructions in the first place.  Admittedly here when I say “some” of the biggest and most successful IFAs I really mean one, Hargreaves Lansdown, whose Vantage platform enables a large and growing number of clients to do for themselves things that discretionary or advisory managers have always done hitherto.  But in a world where HL is making bucketloads of money while most IFA firms totter on the edge of insolvency, it’s hardly surprising that there are an awful lot of people out there looking very carefully indeed at what that clever Mr H and Mr L are doing, and trying to figure out how they could do it themselves.

So there you have it.  According to this analysis, everyone’s moving round one space to the right.

Except…

To be honest, I think I could have equally well written a piece saying that everyone’s moving round one square to the left. 

IFAs with their own branded platforms and tax wrappers want to become life companies;  life companies who put increasing emphasis on the importance of asset management (as Standard Life for example now do) want to become fund managers;  and fund managers who now almost all want to build their own D2C open-architecture platforms are stepping further and further towards the advice space, or at least the information-and-guidance space, and intending to offer investors an alternative to that clever Mr H and Mr L.

So everyone’s moving around, either to the left or maybe to the right, except of course the ones who are staying put.  Well, I did say it’s a situation that makes you dizzy.  And also, to be honest, a situation that makes it quite clear that I have no clear perspective at all on what’s happening.  But one thing I’m quite sure about is that an awful lot is happening - those tectonic plates are moving further and faster than at any time since polarisation back in the late 80s.

The driver of change is, of course, primarily RDR, with the Internet playing an equally crucial role as the facilitator of change:  together, the two are doing a pretty good job of spinning the industry round and round, upside down and inside out just at the moment.

I’m loving it.  But then I love change, and in my job continuing change provides me with the prospect of a nice secure stream of income.  If I didn’t like change, or if I was in a client-side job where continuing change actually provided me with a growing threat to the security of my income, I don’t think I’d be loving it at all.

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Structured investment products have taken a lot of flak lately.  Not because consumers don’t want or need them - in principle, trading off some upside for a downside guarantee is exactly what millions of consumers do want.  No, the criticism, in what seems like dozens of articles in trade and consumer media, is on a completely different basis:  that the complexity and opacity of the products often conceal all sorts of nasty - some even say “toxic” - aspects, ranging from excessive charging to unnecessary and undisclosed risks.  In short, the critics say, if investors knew what was in many of these products, they wouldn’t touch them with a bargepole.

That’s what they have in common with hospital pies, or at least with the pies served to patients at the long-defunct St Luke’s Hospital, in Guildford, in the early 70s.  I know, because for a short while it was my job to make them, just how deceptive their external appearance actually was:  beneath that nicely-browned pastry there was all sorts of more-or-less toxic rubbish, from chicken that came in boxes marked “Not Fit For Human Consumption” to pieces of meat and vegetables salvaged from the unfinished platefuls that came back from the wards.

There was a reason for this and all the other horrible and corrupt practices that went on in that kitchen:  the catering manager was on the take.  To enable him to siphon off as much as he wanted, we cheated and deceived our customers - the patients and staff of the hospital - as much as we thought we could get away with.

And this, I fear, is exactly what some providers are trying to do with structured products.  Structured products are, by their nature, complex and opaque.  But the presence of complexity and opacity doesn’t actually oblige providers to rip off their customers, any more than the presence of a dark and secluded path near a train station obliges those passing along it to become muggers or rapists.  But in the same way that a few people walking along secluded paths can’t resist the urge to mug and rape, it seems as far as I can gather that too many providers dealing with the complex and opaque just can’t resist the urge to cheat and deceive.

And if there’s one aspect of the whole story that’s even more depressing than this, it’s the fact that in the many media articles I’ve read, the journalists don’t even bother to point out that the toxic features of the products actually represent a deliberate choice on the part of the providers in question, not an inevitable consequence.  To the writers, the inability of the providers to resist conning the public is too obvious and self-evident to be worthy of comment:  it’s just what they do.

Assuming that the regulator doesn’t do anything about this (a pretty safe assumption, since a) the regulator rarely does anything until years after the damage has been done, and b) the regulator usually tends to focus on the trivial rather than the important), I suppose providers would only be likely to change their behaviour if their market started voting with its feet.  Consumers are unlikely to do this:  the product benefits are too attractive, and the drawbacks too well hidden.   But it does now seem to be the case that quite a lot of IFAs do now have a problem recommending structured products, having come to understand some of what lies beneath that golden crust.

If that trend continues, in due course providers may find themselves facing a dilemma:  either clean up their act, or overcome IFAs’ lack of appetite, even at the price of making the products even more toxic to consumers, by ladling in another sloosh of sales commission.  I wonder which way they’ll go. 

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I think I’m right in saying that a pathological liar is someone who still lies when a) they’re certain to be found out and/or b) there’s no advantage to be had from lying.  If that’s right, then I do wonder if that’s the point some financial institutions are now reaching in their advertising.

Take the latest cash ISA ad from Barclays.  “An ISA With Nothing To Hide,” the headline says in very, very big print.  Then, in very big but slightly smaller print, “6.5% AER VARIABLE.”  And then in biggish print “6.31% TAX FREE.”

No point in beating Barclays up about the AER nonsense, which absolutely no-one understands and which serves only to confuse and alarm people.  That ridiculous folly is down to the regulator, not the bank.  And apart from that, it all seems clear enough, doesn’t it?  An ISA with nothing to hide, offering a tax free return of, well, let’s say somewhere between 6.5% and 6.31%.

But something about that headline arouses my suspicions.  Why are Barclays claiming to have “nothing to hide”?  Who ever said they did?  Maybe they protest a little too much?  Let’s see what the copy has to say.

In very, very much smaller print, it starts off innocuously if somewhat bafflingly telling us that we can open a Tax Haven ISA with “just £1.”  Why we’d want to open an ISA with £1 in it about four weeks before the end of the 2007/8 tax year isn’t clear - perhaps we’re excited about the prospect of earning between 6.5p and 6.31p in interest over the following year - but, well, fair enough, if we want to, we can. 

But what’s this? After this irrelevant diversionary feint, the copy goes on:  “Our rate includes a 1% gross bonus for 12 months.”  Let’s just think about that for a minute.  So actually, this is just one of those gimmick rates - what the Nationwide commercial calls “bait” - designed to hook you in, thinking that you’re getting something better than you are.  After a year, the rate - which is variable anyway - will fall by 1% as the bonus element disappears.

So, excuse me, not that I’m being pointlessly argumentative or anything, but can we just go back to that idea in the 96-point type? The one about having “nothing to hide”?  That was, let’s say, a little bit untrue, wasn’t it?  It was what one might call a “lie”.  And hidden away in the middle of the (12-point) body copy, flanked on either side by more or less irrelevant diversions, we find what one might call “the truth”.

I don’t know why this makes me so cross.  Heaven knows I should be used to the cynicism and dishonesty of financial institutions by now.  I’ve been writing copy for them for well over 20 years, and I’m sure I’ve written much worse.

I suppose it’s just their utter incorrigibility that really gets me down.  You’d have thought that after the collapse of consumer trust and goodwill over the last generation, they’d have become just a little bit more cautious about lying to us again. But no.  The habit of treating us as fools is so deeply ingrained that they can no more stop doing it than they can stop breathing.

There are plenty of cash ISAs out there with rates as good as, or very, very nearly as good as, Barclays without the “one year bonus” gimmick.  For goodness sake, put your money in one of them instead.Â

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Going back to yesterday’s entry on that conference, I said that most of the presentations I saw were pretty good - but I didn’t say that all of them were.

One particularly silly effort came from a speaker who thought that the best way to go about the “reinventing” of life assurance promised in the conference title was to persuade advisers to stop being hunters and start being farmers - in other words, to give up on the thrill of the new-business chase and settle down with a nice steady client bank and generate a regular income from it.

As Woody Allen said, “The lion may lie down with the lamb, but the lamb won’t get much sleep.”  For most financial advisers - especially for most male financial advisers - the thrill of the new-business chase is the best part of the job.  Hanging around with a bunch of existing clients hoping that some more crumbs may fall off their tables isn’t just boring, it’s demeaning.

Like so many people in financial services over so many years, this speaker had been fooled by what may well be the most unhelpful verbal confusion in the entire marketplace - and believe me, there are quite a few to choose from.  I’m thinking of the confusion between “advising” and “selling,” and the way that almost everyone in the industry uses the former when they mean the latter.  (Oddly enough, no-one ever uses the latter when they mean the former.)  Sure, there are some advisers around, although not many.  They will very likely be farmers.  But the large majority of people described as advisers are actually sales people, and as soon as you realise that, you realise that they’re as likely to stay at home tending their flocks as… well, whichever predatory hunting creature you choose to name.

Although it doesn’t absolutely grasp this nettle firmly in both hands, the FSA is clearly pre-occupied with this hunter/farmer distinction in its current Retail Distribution Review.  If they create a new regime in which sales people are free to sell and advisers are free to advise, both with complete clarity about their intentions and both within frameworks that offer proper consumer protection, we’ll have to stop viewing them with quite so much disdain.

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“Information assymetry,” or, in this entry, IA for short has turned out to be one of the FSA’s more resilient pieces of jargon, right up there with “principles based regulation” and “clear, fair and not misleading.”

What the FSA means by it is that we consumers know much less about financial services than the experts we go to for information and advice.  And this imbalance - very stupid consumer, very knowledgeable adviser - is one of the main reasons, if not the main reason, why things go wrong in the advice process and we get boxed up with useless rip-off products that offer the adviser huge commissions and offer us, well, more or less nothing at all.

It’s on the basis of this analysis that the FSA thinks one of the most important and urgent challenges for itself, for the industry and frankly for anyone with any significant amounts of money to spend is a massive and sustained programme designed to improve “financial capability” - in other words, to make us so much more knowledgeable about the world of financial products and services that assymetrical advisers can’t pull the wool over our eyes.

Like most of the FSA’s favourite ideas, the whole concept of IA, and of financial capability as the antidote, is completely wrong, and pitifully easy to disprove by reference to almost anything in life outside the world of regulated financial services.

The fact is, gigantic information assymetries exist in absolutely all sorts of relationships between people.  It’s easy to think of lots of other commercial examples - vodafone shop, kwik-fit centre, PC World, snooty posh bird in Joseph, sommelier at Gordon Ramsay.  But actually, many of the most important and most universal relationships far away from the world of commerce are based on the biggest IAs of all - boss/employee, doctor/patient, teacher/pupil, parent/child.

There are too many dodgy doctors, teachers and parents, but by and large most people in these roles manage to avoid conning, cheating and manipulating their assymetrically-informed counterparts.  There is no suggestion of a nine-figure budget being spent to make patients almost as knowledgeable about health matters as their doctors, or to put university students on a par with their lecturers.  There is, of course, regulation - much of it the law of the land - designed to restrain those with a tendency to bad behaviour, but there is no suggestion that IA is a problem that needs solving in itself.

No, as far as I can see, financial services is the only field in which it is assumed that anyone with greater knowledge is automatically and inevitably pre-disposed to rip off anyone with lesser knowledge, and that the only effective answer to this is to transform the people with lesser knowledge into people with greater knowledge.

I couldn’t tell you exactly what this says about the morals, ethics and personal standards of behaviour of people who flog financial products for a living, but I fear it isn’t anything very good.Â

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No, not me - I’m vain and prone to self-congratulation, but not to that extent.  The Mr L Camp in question is my brother Lindsay, who has just published his first book for adults (after many cracking books for children).  It’s called “Can I Change Your Mind?” and you’ll find it here on Amazon:  http://www.amazon.co.uk/Can-Change-Your-Mind-Persuasive/dp/0713678496/ref=sr_1_2/203-0920849-6452759?ie=UTF8&s=books&qid=1178646289&sr=1-2.

Perhaps unsurprisingly in view of the title, it’s a book about persuasive writing, slightly in the Eats Shoots & Leaves mould (Lindsay will hate me for saying that, even though what I mean is that it’s funny, clever, outstandingly readable and rewarding for both specialist and non-specialist readers alike). 

As a gesture of fraternal solidarity I was thinking I ought to order a few copies and pass them on to some of the many writers of one sort or another who I know.  There’s no shortage of possible candidates - colleagues in the agency, freelancers who do things for us from time to time, writers at other agencies on clients’ rosters, lots and lots of in-house writers at client companies.

Bit on reflection, I think the best candidates are actually not a group of professional writers at all.  They’re something much more important than that:  the people down at the FSA who decide what we are and aren’t allowed to say in our financial marketing communications.

Yes, of course I know that in this era of principles-based regulation they don’t exactly decide, word by word, what we can and can’t say.  But they are responsible for the overall climate of opinion.  And overall - I don’t think anyone could disagree with this - their view is that the consumer is best served by communications which are full, balanced and fair.

As Lindsay’s book implicitly makes clear, neither fullness nor balance nor actually fairness as such have anything to do with the business of creating persuasive communications.  Cutting down a 50,000 word book to a six-word summary, Lindsay’s advice is, in his own phrase, “Remember the reader and the result:”  in other words, be as clear as you can about exactly who it is that you’re addressing, and think ruthlessly and relentlessly about what you can most effectively say to persuade them to take the action you want them to take.

It’s an approach to writing about as diametrically opposed to the FSA’s as you can get.  I can actually visualise a diameter with the regulator at one end, and Lindsay at the other.

To be honest, it’s also an approach that hasn’t been an option in financial services for quite a few years now, and which I think we can safely say will never be an option again.  In our world, a good 50% of our words are spent on telling our readers things that we have to tell them, whether we want to or not, or whether they want us to or not, or whether the words make the outcome we want more likely or less. 

I don’t think that’s going to change.   But all the same, for those like our regulatory friends, who still believe in the absurd idea of what they call “balanced advertising” - to most of us an oxymoron right up there with “friendly Parisian” or “predictable Spurs team” - Lindsay’s book is a timely and frequently startling reminder of just how far we’ve moved away from the mainstream of persuasive marketing, and into a weird, stagnant and deeply unappealing little backwater of our own. Â

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I’ve been meaning to visit the FSA’s Moneymadeclear website since their irritating advertising for it began, but I didn’t get round to it until just now.  I’m researching a talk at a conference about long-term care (yes, yes, I know, it’s not very glamorous) and the FSA website came up when I googled to see how readily information is available. 

There are moments when one’s worst fears are confirmed, and this was one of them.  Moneymadeclear only has three screens on long term care, and in a moment I’ll copy across the main one, called “Types Of Long Term Care Insurance.”  As you’ll see, this runs to two bullet points on types of long term care insurance, and then the entire remainder of a long and intenselt boring page on explaining the statutory documents, information and warnings which providers are obliged to provide.  Quite frankly, I find it difficult to imagine a more useless or disappointing introduction to the subject of long term care insurance.  And do you know, oddly enough, I’m not in the very least bit surprised.

Here comes the page in question:

There are basically two types of long-term care insurance (LTCI):

• Immediate care LTCI - you can buy this when you actually need care; and
• Pre-funded LTCI - you can buy this in advance, in case you need care in the future.

Firms advising and selling LTCI have to be regulated by us, or be the agent of a regulated firm. Regulated firms and their agents are put on our Register and have to meet certain standards. Always make sure that the firm you use is on our Register and is allowed to sell or advise on LTCI before handing over your money. If they aren’t regulated by us and things go wrong, you won’t have access to complaints and compensation procedures. To find out if a firm is on our Register, see Check our Register.

We require firms to give you some documents with this Key Facts logo which set out important information for you. The information is in a standard format so you can compare products from different firms quite easily. They are:

• Key facts about our services - which tells you about:
  • the service they can offer - whether they offer advice and a recommendation or just information;
  • whose products they offer; and
  • how much you’ll have to pay for the service.
•  Key facts about the cost of our services - which tells you about:
  • your payment options, and whether you can choose between paying a fee or commission, or both; and
  • an indication of the cost of the advice.

Once the adviser has ascertained that a particular product is suitable for you, they’ll also give you a Key Features Document, which sets out:

• the particular features of the product;
• how it works;
• the policy benefits;
• what premium you’ll have to pay; and
• how long you have if you decide not to take out the policy - the ‘cooling-off’ period.

Do read them and ask questions if anything is not clear. For more information about getting advice, see Getting help.Â
 

Absolute rubbish, isn’t it.