We’ve got to start thinking beyond our guns- those days are closing’ fast

We’ve got to start thinking beyond our guns- those days are closing’ fast

When contemplating the future of the financial advice industry, I can’t help but be reminded of the late sixties movie The Wild Bunch. Set in 1913 Texas, the film follows an ageing gang of outlaws looking for one final score as the traditional American West disappears around them.

Substitute the slow motion, multi-angle view of the world in 1913 to that of 2017, where our industry practices are on the cusp of potentially drastic change that could create uncertain future. Virtual reality now prevails, technology is king and in our world the day of the robo- adviser is nigh. But while I wouldn’t want to compare today’s hard working advisers to the dramatic personalities of The Wild Bunch, there’s an undeniable parallel between these characters facing retirement and some troubling figures around the future of the financial advice sector.

 

The current age demographic of the industry, based on our community analysis above of some 18,000 is certainly veering toward the older generation. New entrants to the industry as at Q4 2016 were lower that Q4 2015*. To make matters worse the number of advisers de-authorising in the same periods exceeded those joining*.

It may not come as a surprise that the number of financial advice firms currently being set up in the UK is also falling, with just 334 businesses authorized by the FCA in 2016 according to an FCA Freedom of Information request. It’s not hard to see a link between these dwindling numbers and the lack of fresh business ideas that is often brought about by bringing young talent into an industry.

Barriers to new entrants can be many and varied. Cost is a primary factor, especially for those looking to start a new business. From June this year the new minimum capital resources requirement of £20,000 comes into force.

For most smaller, established, firms it will be based upon the greater of £20,000 or 5% of the previous years’ income. This is in effect dead money and based on the £20,000 minimum, new firms would need to have a minimum year one potential turnover approaching £400k to warrant the lock up of this money.

Fees for a new firm add up quickly, freeze the £20k then add in staff costs, office costs, professional fees, technology, marketing. Possibly followed by an FSCS call. And then comes the need to find a paying client.

If you are moving from an established firm it is highly likely that there will be contractual restrictions placed upon you regarding client ownership and possibly a geographical restriction along with a time based one.

Put bluntly, all of this means that those seeking to create a new business are betrayed by the sheer cost imposed upon the entrepreneur, the ambitious, the wealth builders of the future by regulation. Rather like The Wild Bunch gang, our industry could well be on the precipice of extinction altogether. Is it any wonder then that we’re struggling to attract younger generations to the financial advice sector?

* Statistics based on Equifax Touchstone analysis of our database and CF30 FCA data

Compliance and the Stupidity Paradox

Panacea comment for Financial Advisers and Paraplanners

13 Feb 2017

Compliance and the Stupidity Paradox

Compliance is an important part of the whole world of financial services and indeed many other worlds of business and governments.

In the world of financial services regulatory compliance “describes the goal that organisations aspire to achieve in their efforts to ensure that they are aware of and take steps to comply with relevant laws, policies, and regulations.

The rules are well defined, as we all know, in the FCA handbook. For the avoidance of any doubt, the regulator has even provided an introductory guide.

Regulated firms must follow FCA rules. The rules it would seem are clear (to the author/s) but the interpretation and purpose of them at times makes little sense.

A book, published in 2016 by the City University of London called the ‘Stupidity Paradox’ investigated common sense in decision-making.

Professor André Spicer’s research included input from management consultancies, banks, engineering firms, pharmaceutical companies, universities and schools.

The ‘outcomes’ of investigations into the ‘Stupidity Paradox’ revealed many examples of when common sense decisions are simply ignored.

Examples included: 

  • “Executives who more interested in impressive power point shows than systematic analysis.
  • Companies ran leadership development initiatives which would not be out of place in a new age commune.
  • Technology firms that were more interested in keeping a positive tone than addressing real problems.
  • Marketing executives who were obsessed with branding when all that counted was the price.
  • Corporations that would throw millions into ‘change exercises’ and then, when they failed, do exactly the same thing again and again

I just love the last one.

Professor Spicer’s concludes by asking, “Why could such organisations, employing so many people with high IQs and impressive qualifications do so many stupid things”.

I am reminded of the definition of a camel. It being a horse designed by committee.

I have worked since the early 80’s in the industry thought six different regulators- NASDIM, LAUTRO, FIMBRA, PIA, FSA and FCA. The average lifespan of a regulatory body being some six years.

With the exception of the FSA transition, rulebooks, even staffing, for the predecessor bodies have been subject to rewrite and new hire, not a roll over. The FCA transition was a re-skin.

What does ring loud and clear is that regulators do not, in the most part, seem to learn from past mistakes. Not only are ‘learnings missing, they more often than not refuse to accept responsibility or blame for past mistakes.

The FCA is now approaching four years old. So, in theory only another two to three years to go until yet another metamorphosis occurs. In that time it has seen two chief executives and a significant turnover of very senior staff embarking on a journey working for the firms they used to regulate.

Regulation is an industry. The thousands of pages in the FCA manual require firms in turn to employ thousands of people with high IQs and impressive qualifications to interpret the rules and ensure that their business implements them to the letter.

FCA research from 2015 found that 88% of large firms and 44% of small firms increased the amount of time and money they spent on compliance and the cost of regulation, according to New City Agenda is some  £1.2 billion.

But, and here is the big BUT. The finer interpretation of some rules would suggest that rather like in the Italian Highway Code, red lights are a suggestion, some rules make no sense in their implication.

We would love to know what examples you have of the Stupidity Paradox in financial services regulation today?

The Stupidity Paradox: The Power and Pitfalls of Functional Stupidity at Work (Profile Books), by Mats Alvesson and André Spicer.

André Spicer is Professor of Organisational Behaviour at Cass Business School, City University London.

Mats Alvesson is Professor of Business Administration at Lund University and a Visiting Professor at Cass Business School.

What you have become is the price you paid to get what you used to want

3 Feb 2017

What you have become is the price you paid to get what you used to want

I have borrowed for inspiration from a quote from Mignon McLaughlin who wrote ‘The Neurotic’s Notebook 1960’ as I think it sums up very well where we are in the UK right now both in a society sense and a financial services sense.

I am a baby boomer and not a day passes with a moment of stark reality hitting me full on around the perception of millennials that society is failing them.

Where shall I start?

Well being born in 1951, I have seen quite a lot. Not as much as some but more than most around lifestyle changes and aspirations from the ‘50’s and ’60’s through until today.

In the post war era that I grew up in, the idea of family, friends and neighbours being victims of poverty, exposed to dangers various at every turn just did not exist.

The Thames froze. We had terrible smogs caused by coal fires, houses did not have central heating or double-glazing, toilets were outside the house, Bronco was the paper of choice. We would wake up from a duvet-less sleep in a house with windows frozen on the inside as well as the outside and after being given breakfast it was off to school, with school friends living nearby on foot.

We played in the street, unthreatened. we knew our neighbours, burger alarms were only found on banks.

Buses and trams represented the public transport offering. Milk was delivered by horse and cart, supermarkets did not exist, and food was rationed until 1954.

Homes that had a telephone would often share the line with someone else. And black and white televisions were tiny and for the rich.

Police were on the ‘beat’ walking the streets with clean white shirts and a very big hat, the Fire Brigade actually put out fires and ambulances took people (who actually needed to be there) to a clean and very efficient hospital casualty (not A&E) department. The call for emergency help was often made on a shared phone line or by your family doctor, not a GP, if they could not help.

If you were unemployed, you went to your local ‘Labour Exchange’ and got very little money to help in times of hardship. The credit card did not exist.

And as for financial advice, the ‘Man from the Pru’ was the ‘come to you’ solution. If you were a person of substance, your bank manager would assist, resplendent in attire and tattoo free.

Sixty five years on is this the time for a pause to reflect on whether life is better or worse in 2017 than it was in the 1950’s?

88% of Advisers would not use an outsourced Paraplanner

Nearly nine out of ten advisers say they prefer to employ a full-time paraplanner as part of their in-house team instead of turning to an outsourced paraplanner, exclusive research from Panacea Adviser has revealed.

The survey of just under 90 advisers asked if advisers consider outsourced paraplanning an attractive option for their firm, to which 88% responded to the contrary that they currently favour having a paraplanner on board as a permanent member of their in-house team.

Less than 1% of advisers surveyed said they would consider outsourcing paraplanning in the future.

We believe that the Retail Distribution Review (RDR) expedited the already expanding nature of the Paraplanner’s role and made them a ‘must have’ resource for many smaller advice firms looking to maximise their earning potential.

Against this backdrop, we might have expected to see a sharp uptake in demand for both in-house and external resources, something which makes the lack of popularity surrounding outsourced paraplanners in our latest survey a somewhat surprising result. However, in our opinion, this does not suggest that outsourced paraplanners somehow have less to offer than their in-house counterparts, they just need to do more to shout about the time saving and other benefits that outsourcing can bring to adviser firms.”

INDUSTRY VIEWS ON PARAPLANNING

The research also gathered opinions of both paraplanners and advisers, highlighting some of the key challenges – and benefits – that using this type of external resource can bring for advice firms.

Nathan Fryer, Director of outsourced paraplanning firm, Plan Works, said:

“I can fully understand why advisers would be apprehensive about outsourcing work of this nature to a third party. In many ways if I were advising myself, and could afford it, I would most likely look to employ a full-time paraplanner too. After all, inviting a stranger into what is quite often an adviser’s “life work” can be bewildering. 

“It’s this that makes communication so key when it comes to outsourcing, explaining why many outsourced paraplanners actually offer a bedding in period for the two parties to get to know one another and identify how they can work together.

While it is also true that having someone in-house can assist with other tasks such as admin and marketing, paraplanners are actually becoming increasingly few and far between, which means that salaries are also being pushed higher and higher.” 

Morwenna Clarke, CFP from Portland Wealth Management, also commented:

“We actually have a successful outsourcing relationship with a paraplanner at present but, in the past, we have come across issues around data protection when outsourcing.

“It seems that some outsourced paraplanners contracts don’t cover the legal issues around protecting and storing customer data, which could potentially see the adviser breach certain European laws. Another issue that may deter some advisers from turning to an external paraplanner is the changing definition of what constitutes a ‘worker’ under UK law, which may make it difficult to work with an outsourced paraplanner.”

As with every element of your business, it is important to ensure when working with a third party that the proper data protection licences are in place and that advisers work closely with their outsourced paraplanners to identify secure ways of communicating and storing data. This should help overcome some concerns that advisers have around using outsourced paraplanners.

Panacea Adviser provides opportunities for advisers and outsourced paraplanners to connect via its Paraplanner Directory and at no cost.  Here, outsourced paraplanners are able to include business details and links to their own website – allowing them direct access to Panacea’s 19,000 strong community.

For more information on the Paraplanner directory please click here. 

Save our NHS, but how?

Panacea comment for Financial Advisers and Paraplanners

5 Dec 2016

Save our NHS, but how?

I had a very interesting discussion over the weekend with a Labour party activist, campaigning under a specially erected party tent in the centre of my hometown, Wokingham.

I was asked if I would sign a petition to support more funding for the NHS and a very interesting discussion ensued.

The female activist was a bit younger than me and was a teacher. She was passionate about the NHS and was of the view that the NHS needed so much more money.

I agree, but having seen in my 65 years how the NHS has evolved, something, in fact most things with the NHS and its management and funding is seriously broken.

The NHS was launched on July 5th 1948 by the then Labour health minister Aneurin Bevan It was based on three core principles:

  • that it meet the needs of everyone
  • that it be free at the point of delivery
  • that it be based on clinical need, not ability to pay

Please note these, and especially those words in the last one around clinical need and the ability to pay.

To most a visit to your GP, a ride in an ambulance to A&E and the ensuing care after an accident or sudden serious illness are rightly considered to be FOC, funded by our taxes.

But we live in a very different world to that of 1948. Health service provisions are more sophisticated, peoples health needs have become very jentitlement based indeed and as a result are far more expensive.

For example, in 1948, the following were not available treatments on the NHS:

  • Heart and lung transplants
  • Liver and kidney transplants
  • Gender re-assignment
  • IVF
  • Womb transplants
  • Breast enhancement and reduction
  • Tattoo removal
  • Critical illness busting treatments such as cancer
  • HIV prevention
  • Intelligent prosthetics

Whilst many in the UK would cling to the 1948 core principles, the fiscal fuel for delivery of healthcare requires a charging rethink, especially as so much of the NHS service delivery in 2016 is driven more by a clinical want than a clinical need.

Not everything is free anymore in the NHS. With some exceptions we pay for dental care starting at £19.70 prescriptions starting at £8.40 and eye care, excluding contact lenses.

Surely the time has come to apply notional charges for GP visits and non-emergency NHS services that are not currently subject to charges in line with the dental model.

But will politicians be brave enough to change the funding model from all taxation to an element of pay on delivery?

Just a thought

FSCS levy and some blue sky thinking

Regulation comment for Financial Advisers and Paraplanners

31 Oct 2016

FSCS levy and some blue sky thinking.

We hear that the new chief executive, Andrew Bailey, has confirmed the introduction of a product levy will be considered as part of the regulator’s upcoming consultation on the funding of the Financial Services Compensation Scheme.

The time is right for Mr. Bailey to also consider (alongside this very sensible idea that always seems to get ‘kicked’ into the long grass) the use, or in reality, the miss use of banking fines in this consultation?

FCA fines were to be used to offset the cost of regulation. But not any more.

Why, well here’s the thing as they say.

Over the last century or two the nations wealth and success was built on our vast below ground natural resources.

Coal, tin, oil, sand, cement, gravel extraction have all played their part but many fear that these resources have a limited life as dwindling stocks make it more expensive to recover.

Alongside all natural resources there is a tax raising opportunity but if stocks of natural resource reduce or become exhausted this will, in turn, see tax revenues reduce and that spells trouble for HM Treasury.

But the nation has turned to another ‘natural resource’ because of some very clever HM Treasury ‘fine-fracking’ on the part of the last government

This table contains the FCA’s own information about fines published during the calendar year ending 2016 and up to the 12th October.

The total amount of fines levied so far in 2016 is £22,127,442.

  • In 2015 £905,219,078 was levied
  • And in 2014 £1,471,431,800 was levied.

The FCA will deduct its costs from these huge amounts and the rest will go to HM Treasury. The FCA was obliged by statute to pay away £1.370bn of the 2014 fines to the Treasury, the equivalent of 70% of all alcohol and tobacco levies for 2014.

In April this year the FSCS announced a £337m levy for 2016/17.

The FSCS levy in 2015/16 totaled £319m.

So over the last 3 years some £2.4bn in fines has been levied that could have seen zero FSCS levy for a good number of years with the polluter paying. Just do the math!

Banking fines should be used to reduce the burden of regulatory cost, in particular that of the ‘oh so’ contentious FSCS levy that hits, in particular, small IFA businesses the hardest.

Any thoughts yourself?

Do let us know here via our quick survey, details will be shared with Mr. Bailey.

Happy 30th birthday Big Bang

Regulatory comment for Financial Advisers and Paraplanners

26 Oct 2016

Happy 30th birthday Big Bang

It was the great Gordon Gekko who said, “Moral hazard is when they take your money and then are not responsible for what they do with it.”

With these words of wisdom, I felt it might be time to reflect upon the fact that 30 years ago, on 27 October 1986, the closeted clubby world of the City was subject to a positive tsunami of changes that today, for those of us old enough to remember it, was called the “Big Bang”.

I was working in the City at the time and the financial services world, as we knew it changed forever from that date. The late starts, long lunches, early finishes were no longer fashionable, everybody started dressing like Mr. Gekko, huge mobile phones were ‘hand borne’ not hand held, the colourful LIFFE boys would strut their stuff around the Royal Exchange between trades and generally life seemed to have a very particular and agreeable buzz.

Over the past 30 years what was once a rather staid gene pool of public school chums in pin stripes, a veritable gentleman’s club of friends and relatives, had morphed into a US-stylisation of business practices.

With it came the skyscrapers of Canary Wharf and the City all linked with the considerable diversity introduced by foreign banks as plus points, but, the downside was that it came with a certain killer instinct that would mean even your friends and colleagues were not guaranteed a particular benefit without a cost attaching.

But in the post big bang world, as Mr. Gekko would say, “if you need a friend, get a dog”.

Regulation and financial services have not always been easy bedfellows yet upon reflection the world did seem a nicer, gentler place in many ways in the years building up to that 1986 Big Bang.

Social media did not exist then. What led to Big Bang was that the London Stock Exchange was coming close to, if not actually being found out without the enhancements of Google searches.

The stock market was really an almost regulation free (when compared to today) cartel, fixing commissions and linking this with trading floor admission complexities that would do the Royal & Ancient some credit.

It was a posh, gentlemen’s club version of the old London markets of Smithfield or Billingsgate- but with manners.

We saw a closed shop for the benefit of brokers and stock-jobbers all safely contained in their pin striped, bowler-hatted bunker which in the coming brave new world of class and professional barrier deconstruction would not be seen as acceptable any more.

Margaret Thatcher had been in power for some 7 years and the Thatcher vision of wealth creation by way of the state selling the public something they already owned was underway.

She was warned pre big bang, that this vision would lead to a new culture of ‘unscrupulous practices in the City‘, according to a release of government papers in 2014.

Her Cabinet secretary Sir Robert Armstrong said that a ‘bubble’ was being created that would be pricked” and “that corners were being cut and money made in ways that are at least bordering on the unscrupulous”.

But despite the warning, we still “Told Sid” and the nation rode a gravy train of expectation with flotations of once staid mutual institutions like the Halifax and Abbey National building societies- yes, remember them?

The merchant banks were in gorge mode on these flotations. SG Warburg, Schroders, NM Rothschild, Samuel Montagu, Hill Samuel and Morgan Grenfell were there doing it “very large”.

US investment banks like Goldman Sachs and Salomon Brothers (remember them too?) were also keen on some action but leading up to Big Bang it was not too easy for them to get into the club.

But change was on its way, the days of fixed commissions and closed shops were being replaced by the need to be competitive.

The City was no longer a place for “Gentlemen and Players.”

It was becoming a world of young and thrusting ‘spiv’ market traders who had literally switched venue, being recruited from the perceived ‘low rent’ market environs of Petticoat Lane, Billingsgate, Smithfield and Covent Garden.

And those guys brought their trading skills and “Loadsamoney” culture to the previously hallowed ground of the City and the Stock Exchange.

But now they worked, shouting in trading ‘Pits” or shouting at banks of computer screens waiting for that big deal, greeting it with more shouting and of course the resulting huge bonus moment.

The big success story of Big Bang was Warburg’s swallowing up of Ackroyd and Smithers, Rowe & Pitman and Mullens & Co who in turn were swallowed whole by UBS, then UBS/Phillips & Drew/Swiss Bank empire.

In the feeding frenzy Barclays paid huge money indeed for Wedd, Durlacher and de Zoete and Bevan, Deutsche Bank ate up Morgan Grenfell, Midland Bank (who are they) bought W Greenwell and this then got digested by HSBC. Kleinwort Benson bought Grieveson Grant, and NM Rothschild, Smith Brothers.

And what of the “Gentlemen and Players”?

Well they all retired to their stockbroker belt houses and country estates swapping pin stripe for tweeds, having “trousered” some very serious money.

With this sea change we saw the disappearance of those traditional and cautious values, my word is my bond, trust, nods, winks and tips were all to be replaced by what is now seen in many quarters as a reckless abandon, using somebody else’s money to trade on your own account for the benefit of the Banks who employed you and more importantly yourself.

If it all went wrong, the bank carried the losses until, as we saw with the spectacular 2007 banking collapse, the taxpayer did if nobody else seemed interested.

So when the indigestion disappeared from this bout of Mr. Creosote like fiscal gluttony, was Big Bang a success, was big beautiful?

Sir Robert Armstrong had the correct vision and Gordon Gekko I think has proved to be the master philosopher. The banks, post big bang, did take our money and were not responsible for what they did with it.

The largest banking fine in history levied this year has shown only too clearly that for rogue traders, in Gekko speak, “there is a very big difference between rehabilitation and repentance” and as far as casino banking and regulation is concerned, there is some way to go on both counts.

This would never have happened in the world of ‘Gentlemen and Players’?

Just a thought.