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LETTER FROM AMERICA: ALL THE MONEY IN THE WORLD

Big news today that BlackRock, which looks after more money than you can POSSIBLY IMAGINE, has bought the robo-adviser (and I might be sitting in New York but I’m still going to spell ‘adviser’ correctly) FutureAdvisor for an undisclosed sum which the FT reckons is between $150m and $200m.

OK, so a takeover, no biggie. Robos are big news here and everyone gets it. They’re massive and a world away from what we have in the UK.

Ah, but wait. FutureAdvisor currently has…$235m on its platform. That’s about £150m. And it’s just sold for (if the FT is right) about £125m. £150m AUA, £125m purchase price.

Well now. If we’re now valuing advice businesses at 83p on the pound then I know a lot of advisers who are going to start getting very excited. Stick ‘robo’ on the front of your firm, rename it to something funky with a capital letter halfway through, and boom! Riches result.

Except, of course, that’s not quite what’s going on. For a start, FutureAdvisor has built a bunch of its own technology, so BlackRock is buying intellectual property rather than assets (it has plenty of those already). How do you value (relatively) early-stage businesses in a sector which is as hot as fintech? Generously, it appears.

(Just a point – a number of adviser firms are starting to offer ‘robo’ type propositions in the UK, which are powered by third-party technologies such as Parmenion’s Interact simplified advice system. Just so we’re clear, the big valuations are for those who’ve developed the tech, not for those who’re licensing it and using it. Sorry.)

Second, the story here is that brand matters. We know this from Schwab, who launched its ‘Intelligent Portfolios’ in March, and now has over $3bn AUA. Was some of that rewritten from Schwab’s own book? Sure. But who cares? That’s $3bn since March. March. Even Betterment, the robo AUA leader, only has $2.5bn to show for a good couple of years effort.

Vanguard’s Personal Advisor Services is a hybrid service, and has $21bn on it. In May, according to Ali Malito of Investment News, that stood at $17bn with $7bn of that being new money. Put in GBP, that’s £13.5bn. Vanguard’s been at this for about 5 months officially, and has taken $4bn during that time. In the 2 year pilot preceding that, it took $7bn of new money.

So BlackRock is coming to the party, on the bet that a nice system (and FutureAdvisor does look nice) added to its very powerful brand, will quickly add billions to its AUA. Don’t forget as well that over here there has been no RDR and no PS13/1, so asset managers and platforms have lots and lots of ways to generate margin from what it is that they do.

It’s getting exciting, sports fans. Coming up soon – ‘is the fintech bubble about to burst?’ stories…

LETTER FROM AMERICA: MARKETS DOWN? TIME TO SUIT UP

As Bill Hicks once said, ‘oops, did I leave a cigarette lit or something?’

As I write…

• Dow down 6.5%, over 1,000 points.
• FTSE 100 down 3.5%
• China down ‘a shitload’
• European indices down over 5%
• Twitter meme incidences of ‘traders with head in hands’ up by 5 million percent.

So the correlation of two lang cats leaving the UK to work on the USA PR and marketing operation for one of our clients and sniff around roboadvice while we’re here to global market meltdown is exactly 100%. Anyone who wants to pay us loads of money to stay put in future should apply at the number below.

Actually, apart from the fact that everyone has a little less money now, and with a decent beer in New York costing $10 that’s an issue, there’s some good news in this.

As you probably know, we do lots of analysis of advisers’ Centralised Investment Propositions, especially in the outsourced market. If you didn’t know, you’re forgiven, but should read up here. Nearly all the risk-banded multi-asset funds or model portfolios offered by DFMs have the same belief at heart – that they can control volatility by using a) good active managers and b) non-correlated asset allocation.

Over on the other side, the passive hounds bark that this is all a load of mince, and that the ability of these propositions to do that is unproven.

When we analyse portfolios, we look for major corrections in the market which provide a very useful reference point. We can run performance before, during and from the point of whatever market event is making everything go shoogly.

Our best model point before today was 2008; a time when relatively few of the propositions advisers use were around. So there’s a huge amount of survivorship bias and general skewing, which is a pain in the Ronson when you’re trying to draw conclusions.

But rejoice! Not only do we get a nice new model point for our analysis, this is a BRILLIANT OPPORTUNITY for all the active managers, multi-asset / multi-manager funds and DFM model portfolios to show how good their vol control is and how they ‘add value’ (bleeuurgh, their words not mine) in a market which isn’t simply rising.

Lads, it’s time to suit up and prove the doubters wrong. Give us a shout and let us know how you get on. We’ll be watching…

uok

It’s all in the game

One of the most iconic scenes in The Wire is the court room scene where Omar, a character who has a penchant for murdering drug dealers, is being cross examined by an especially slimy prosecution lawyer. After a couple of minutes of the lawyer lambasting our hero for living off the drug trade and creating misery Omar, or Mr Little to give him his courtroom name snaps, pointing out that the lawyer is just as guilty as he is. “I’ve got the shotgun, you’ve got the briefcase. We are all in the game.”

Incidentally, if you haven’t watched The Wire, stop what you are doing, go home, buy/download the box set and do try to keep up in future. It’s peerless television. If you ask me nicely I’ll even lend you the DVD.

If you work in financial services in any way then you are part of the financial services game. The general public finds it hard to distinguish between the different parts of the FS industry and sadly certain elements have a reputation similar to that of drug dealers (hello bankers). Whether this is valid or not is irrelevant. Everyone within financial services knows we have an image problem, and also everyone knows the only way we ultimately make money is from the end customer. It’s just a question of how removed from them you are, how transparent you are about it and whether you put the customer’s needs above your own.

Companies exist to make money and ultimately become wealth generators. This is perfectly valid, however financial services should be a special case. One of the most depressing aspects of the poor reputation we all have is that financial services should be the ultimate social industry. What is more important than saving for your future and protecting the ones you love? The answer is nothing, and unfortunately financial services has failed to recognise, and still fails to truly put the customer’s interests first.

The launch today of a consultation on pension transfers and early exit charges is a small opportunity to do something about this image problem, and make improvements that will truly benefit the customer. Make no mistake, this is big. Pension reforms have been front page news on numerous occasions, including today, and the government knows it impacts a key voter demographic. It’s not a story that is going to go away soon. However for some providers this consultation is something akin to turkeys voting for Christmas. They are being asked to help people take their money out faster, to be charged less for it, and to pay to develop seriously old systems for the privilege. With an estimated £26bn of legacy assets at stake it’s a huge issue for the industry, but one that gives us an opportunity to truly put the customer’s needs first. Exit charges are not technically obsolete, but the time is fast approaching where they will become morally so. Providers need to recognise this and go with the flow. If you need legislation before you commit to changes then it’s clear to all the type of game you are playing.

Price: only important in the absence of clear value

Last week the lang cat launched PLATFORM PRICING PROPHECIES: PAST PRESENT AND PHUTURE. If you haven’t downloaded it yet, consider yourself on the naughty step…but don’t worry…you still can and all will be forgiven.

Calling it as we see it is kind of our thing and the paper has elicited (ooh fancy) a fair bit of reaction and comment across both the traditional and social medias. Which is great, because it’s always good to talk.

Perhaps the most contentious issue, which being honest was a bit of a surprise to me (in a good way) is the price versus suitability chestnut. We called out in the paper that analysis of pricing trends was a separate issue to suitability and it wasn’t our intention (honest) to put anyone on the defensive over their level of charging. The study was, however, about market pricing trends and to do that without assessing the highest and lowest points would, we think, have been ducking the issue. Indeed, via our ninja produced #heatmaps (as you read this Steve is on holiday, probably), the lang cat has been documenting pricing competiveness since time began (which, if you’re five, is sort of true).

It’s good that this has come to the fore. The platform sector can seem overly sensitive to price because all you ever heard for about two years solid was that a, b and c was cutting x, y and z charges.

Price is important, but here’s how I see it; only once a suitability match has been made. Whether that’s identifying a single platform that can meet the needs of all clients, or more typically these days, a small panel that’s designed for different client segments. Once a short-list has been identified that’s when cost assessment really starts to matter.

The UK platform sector is pretty diverse and that’s something which should be celebrated. For example, you’ve got James Hay, which can support highly sophisticated SIPP investors, Old Mutual with Wealth Select’s sub-advised portfolios, open architecture platforms like Transact, True Potential offers an end-to-end solution (and is also doing some pretty cool mobile technology stuff) and Aegon has just launched on-platform unit-linked guarantees. That’s just to name a few, there’s a good deal more in between.

It just doesn’t look to me like a market that’s going to consolidate into a much less interesting mass of three vertically integrated behemoths; the AUSTRALIA ARGUMENT has been doing the rounds for years now, it’s just not happening over here and I for one don’t see how it’s going to in the (ph)uture.

I think platforms should focus on what they’re good at and communicate those things clearly. And that includes being honest about what they’re less good at (or at any rate, less suitable for).

And, by the way, the same philosophy applies to D2C platforms that are also gratifyingly diverse. SHAMELESS PLUG ALERT. At the lang cat we try to practice what we preach and our forthcoming Direct Platform Guide (which will have a much cooler name than that) will give you our analysis on the differences between the main players – and believe me there are plenty.

In the meantime, did I mention you can still download the pricing guide?

Better communications: Only smarties have the answer

I was interested to read the FCA’s discussion paper around smarter consumer communications, published yesterday here.

The Regulator has recognised the fact that the way the financial services industry communicates with its customers often leaves a lot to be desired.

Christopher Woolard, director of strategy and competition, said: “information itself does not necessarily empower the consumer… it can overwhelm, confuse, distract or even deter people from making effective choices if presented in a way people struggle to engage with.”

The discussion paper suggests moving away from “a box-ticking approach to communication design, or the perception that communications driven by regulation are the responsibility of compliance and legal staff” and “adopting innovative techniques to improve how key information about products is conveyed and delivered to consumers”, with video being highlighted as one option.

All this is great, but I think the way information is delivered is only half the battle. Yes, I like ‘information snacking’ as much as anyone, with my news delivered in 60 second bites or 140 characters; but I’m also capable of delving deeper and reading material that engages and informs.

And that’s the key with consumer communications. We need to deliver information in a way that engages and informs and that doesn’t make you want to rip your eyes out to make it stop. The problem is that currently, a lot of financial services communications is either really technical or too fluffy. Most of it is very dull and there are a lot of pictures of happy old people on a beach. Or looking into the sunset. Or on a beach looking into the sunset.

I recently opened a regular savings account for my daughter. Despite the fact that both she and I already have accounts with this well-known high street bank, I had to go into the branch for a 30 minute meeting to open the new account. The meeting involved information delivered verbally, on-screen, via a leaflet and through a short video. Having already chosen the account before I started, I’d frankly rather have applied online in three minutes (like Mike Barrett’s credit card experience), but at the very least we could have skipped the video, which really didn’t add anything except more time spent in a stuffy office.

So yes, let’s definitely do smarter consumer communications. Let’s cut through the jargon; make things simple without making them trivial; make things a bit less dull. Then it doesn’t matter if it’s a video, a brochure or a tweet – it’s whatever format is most effective to do the job.

On-brand heatmapping: Aviva goes D2C

On Friday past, the gaffer shared his thoughts on the difficulties facing new entrants to the already stacked D2C market. In it, he alluded to details of a new entrant emerging any day now. Well, today Aviva has launched its platform for consumers, cryptically named the Aviva Consumer Platform.

The platform is powered by FNZ and offers access to a dealing account, ISA and pension together with both fund and equity investment. Let’s look at the charges first and we’ll talk about other stuff in a bit;

  • Aviva have gone for a tiered ad-valorem (posh -> percentage) structure. First £50k costs 0.4%, next £200k at 0.35%, the following £250k at 0.25% and no charges above this.
  • In simple terms, this equates to a charging cap of £1,525 per year because arithmetic.
  • This applies across dealing account, SIPP and ISA with no further core wrapper charges or GYMBOA[1] costs
  • Fund switching is bundled in. Equity trading costs £7.50 a pop.
  • No exit fees at all for product closures or transferring out. That’s a fist pump in our book.

I’ve wiped the stoor from our D2C platform engine and programmed in the charging structure. Let’s see how this all translates to our heatmaps. Usual assumptions apply. We look at investment in funds, ongoing platform and wrapper charges (with the exception of the initial £200 fee to open an iWeb ISA – too large a fee to ignore) plus the cost of 5 switches (5 buys and 5 sells).

We have equivalent tables for equity investment – just drop us a note if you’d like them too.

SIPP first:

SIPP

And ISA/GIA:

ISA

So, from a charging perspective;

  • Your cost of entry if you have more modest funds is very competitive. 40bps stacks up well against those with fixed costs or those who charge extra for fund switching
  • Lack of SIPP wrapper costs in particular makes it an extremely attractive option for anything up to around £50k.
  • For pretty typical pot sizes (10-20k in ISA and 100k in SIPP), Aviva are a gloriously on-brand yellow hue. We hope this is deliberate.
  • We’ve not featured the equity tables here but the £7.50 trading charge is competitive compared to most peers who charge around the tenner mark. However, lots of these peers carry no core custody charges so the net effect is much of a muchness.

All in all, from a cost point of view there’s little to disagree with here. A relatively simple charging structure (although we’d prefer fewer tiers) with no extra costs for drawdown or transferring out gets a thumbs up.

We do find the fact that the entry charge for a D2C ISA with Aviva is 60% higher (25bp compared to 40bp) than that on its adviser platform a bit weird. A bit like Tilney BestInvest charging more for an ISA than SIPP, it’s just one of those things that doesn’t feel right.

Also strange is the fact that the platform is powered by a different underlying kit (FNZ) compared to its advised wrap (Bravura). I’d question how sustainable this is going forward? For example, how efficient can it be to have to respond to regulatory changes across 2 different pieces of kit? Will be interesting to see how that pans out.

We’d love to look at the proposition itself in a bit of detail but given that Aviva are soft-launching it’s difficult to go into any depth at present. Info is a bit on the light side and is a bit lost within the sheer scale of the Aviva website. We would hope and expect something a bit more flavoured and distinct to show up in the coming months.

At lang cat HQ we’re currently in the process of writing our annual (free) guide to D2C investment. Once the Aviva platform is launched properly, we’ll be opening an account and reviewing in one of the quarterly updates that follow.

Till then, I share the boss’ scepticism when it comes to a new entrant to the market gaining any immediate traction. We see lots of propositions, some of which genuinely well articulated, in this market struggle to gain meaningful AUA and I suspect Aviva will need more than just brand reputation and financial strength to succeed here.

[1] Get Your Money Back Out Again

Drowning in the D2C value pool

Another week, another D2C platform’s details start to emerge. No names, no pack drill in deference to the journalist who’s writing it up, but by our count that’s the 33rd contender vying for the self-directed market. We’ll see another couple by the end of the year.

Irrespective of the relative merits in terms of proposition, customer experience, brand or price, the question is whether there is enough market to sustain all these cool cats, especially when you factor in another 30 or so advised contenders.

This is one of those times when proposition teams get the big boys in to ‘size the market’, and what usually happens is that they get the equivalent of the glassy-eyed fixed-stare optimism of the schmucks on Dragon’s Den. In the Den it’s all “the global night-time leisure products market is worth £84 squadrillion, so if we can get just 0.1% of that market then we’ll be RICH, RICH I TELL YOU!” The fact that no-one, including the inventors’ Mums, wants the head-torch-cum-VD-testing-kit they’ve cleverly devised, doesn’t come into it, giving Duncan Bannatyne another excuse to be supercilious.

In our industry, it’s “the total UK investment market is £xxx trillion, and that’s without all the money languishing in rubbish savings accounts, so if we can get just 1% of that we’ll be THE NEXT HARGREAVES LANSDOWN!” This kind of value pool analysis is the bedrock of most business cases, and in a way we should be grateful it is, otherwise nothing would ever get built and we’d have to get proper jobs.

Value pool guesswork is fun for a pitch for investment from the board, but is of course utter bollocks. I thought I’d have a shot at what the proper equation should be:

  • Total investment market including short-term cash savings
  • minus
  • the amount people should have in short-term cash savings for emergencies
  • minus
  • the amount risk-averse people should keep in cash so they can sleep
  • minus
  • the amount advisers manage on behalf of their clients
  • minus
  • the amount held by people who’d rather die than give it to the investment industry
  • minus
  • the amount held by people who don’t trust the interwebs for finance
  • minus
  • about 88% of the assets held on platforms currently (platform business is sticky)
  • minus
  • the amount in pensions that should stay where it is
  • minus
  • the amount HL will get just cos it’s the biggest and quite good at what it does
  • divided by
  • 33
  • equals

what you might get, over a decade or so, if you really stick at it and build your presence

Who’s up for our version? Anyone? Anyone?

I wonder how many of the 33 really have the appetite to go the distance? The sheer, sustained focus and effort of gaining a client bank you can farm, as HL has done so well, for years and years takes – well, years and years. In a market where providers of capital want a quick payback, which most readily comes from easy-to-sell, price-sensitive insurances, it’s one thing to launch a slow-burn, marketing-led proposition; quite another to stick with it and invest relentlessly in the engagement work to make it, very slowly, fly.

Indebted to technology

One of the housekeeping points I chatted through recently with @theactualpolson was the matter of company expenses. As much as I left my old job on good terms I had to relinquish my beloved old company credit card, so I needed to apply for a new one to cater for the massive Lang Cat expense budget. I picked a high street bank (one who we all own a small stake in) who would also top up my air miles along the way. I applied online, telling them that I had only been in my current job for less than a month, and asked for £1k credit limit. Within a matter of seconds the website welcomed me as a customer, and gave me a credit limit of £7000. The whole process took me around 3 minutes, I didn’t need to sign anything, and 48 hours later the card arrived.

It’s scary just how easy it is to get into debt, both in terms of the availability but also the ease of the user journey. I put in my details onto a website, and 48 hours later could have been £7k in debt. Easy. Worse still, it seems to me that financial services as an industry has put much more effort into the user journey for debt based products rather than savings. Much has been written about Wonga (and other such companies) yet despite the eye watering interest rates they charge they still get customers using them. Wonga’s own published stats show that over 2/3rds of their customers are under 35, 100% have mobile phones, and on average the money is sent within 5 minutes of the online acceptance. 86% of their customers rated the process as “very easy” or “easy”. The process is quick, easy, and it is tablet & mobile friendly. As @terry_huddart recently noted, a lot of platforms have an awful lot to do in this respect.

We have conducted some research into the user journeys for investing via a number of the leading D2C platforms, and we will be sharing our findings over the coming months. There are some good examples of clear, simple & easy to use websites, leading into decent well priced products & solutions, but others have much to do. As an industry we need to make it as easy to save & invest as it is to get into debt. Hopefully this is just a case of providers upping their game & building an easy to use end to end customer journey, but the cynic in me can’t help but wonder if their customer journey innovation will continue to be concentrate on debt products.

Elven safety at #langcatlive

So we’ve had Mr Polson’s version of the #langcatlive experience. A perspective largely from behind a camera which, after a little cross-London sprint and some highly educational narrative, was happily attached to a tripod. (There’s a lesson in there: checklists are great as long as you remember to put stuff on them.) We’ve also had some lovely feedback from people and it seems a good time was had by all. This makes us very happy indeed. We might even do it all again. We’ll see.

But there’s always the slightly less glamorous aspect to these things; requiring that you be up and alert(ish) at a time that should be illegal, quietly beavering away in the background to make the magic happen whilst trying to manage some of the more diva-esque demands.  Although I did manage to talk Mr Polson out of his request for a basket of kittens and a bottle of 50 year old Balvenie in his dressing room. And a dressing room.

I can’t even claim credit for very much of the beavering, that was all down to the indefatigable Shona McCowan who really did make the magic happen. The bulk of my efforts involved strenuous negotiations with some pull up banners. Doesn’t sound like much I grant you, but it was a battle, not a skirmish.

While Messrs Polson and Locke (a frustrated roadie at heart) ran the show at the front, I settled down at the back for some serious live-tweeting as proceedings unfolded. Quite apart from the quality of our line-up of speakers, I was impressed by the audience. It was something of a who’s who of financial services and it gave me a little warm feeling inside that so many people had taken time out to come along to our little event.

It was a curious feeling sitting alongside people in the room whilst reading their tweets. A modern phenomenon but one that gives a unique sense of how people are genuinely reacting to and engaging with what they’re watching. There were some robust debates going on in the room without a word ever being spoken. And how different points resonated with the various members of our audience was reflected in who was highlighting what to their followers. If you missed it and you ‘do’ Twitter, take ten minutes and read through the #langcatlive timeline, there’s a lot of good stuff there.

There’s also some good stuff in When the Levee Breaks: What Next for the UK Retirement Savings Market? (seamless, eh?) which formed the basis of the event. If you’ve missed it so far, we’ll forgive you and you can put things right by downloading it for free here.

It was our first event and we learned a lot. Mark has covered most of it but he did miss one thing. If you’re sending stuff home by courier (particularly if you’re flying home) take a roll of packing tape and a pair of scissors you don’t mind leaving behind. That’s a worker elf tip, by the way.

langcat_retirement_pages

Does anyone know a decent plumber?

Paul Lewis has hit a raw nerve with many in the financial services industry. His piece about the transparency of charging here (and let’s remember he’s not having a pop at advisers specifically) has caused much consternation below the line and on his twitter timeline.

I imagine Paul had never expected such a fierce reaction, yet I also suspect he’s quite pleased with himself too. As Money Marketing will be as they see the page impressions mount up (as an aside, they’d probably have substantially more impressions if they sorted out their new registration requirements – grrr).

On reading the article I thought it made some good points about the charging structures in our profession.

Yes – the analogy is a bit wide of the mark and a bit clumsy from a purist’s perspective.

Yes – the comparisons are unfair in places and may even be insulting to some (if you choose to take offence).

But one thing’s for certain. WE DO HAVE AN ISSUE IN THE WAY WE COMMUNICATE THE MYRIAD CHARGES at play across our sector. Have a bash at arguing everything is rosy if you want, but know you’re just plain wrong if you do.

Perception is king. And generally, people who engage with our profession, whether through advice or direct perceive us to be a bunch of shysters out to fleece them of their hard earned. Poor us. Life’s just so unfair eh!

Now, you know that’s not true as much as I do. Our profession exists to ensure people make the most of their money; to protect them and to look after them financially throughout their lives. But it doesn’t matter what we think. What matters is what people paying for the products and services think. All that Paul was doing was holding a consumer mirror up to our faces and forcing us to take a good hard look. And what we saw wasn’t pretty.

And that’s where the reaction to Paul’s article could be more dangerous than the piece itself. Consumers – y’know the people who buy our stuff – will read Paul’s piece (likely nodding profusely as they do) and then wander down to the comments. Their negative perceptions will then be reinforced by the comments they read. They’ll see a bunch of industry folk defending current practices and attacking Paul’s ‘lack of knowledge’ and calling his journalistic integrity into question.  Put yourself in the shoes of someone outside the industry for a moment and read the comments from their perspective. If you’re honest with yourself, you’ll see how counterproductive they are. They do nothing to convince the casual reader that we recognise problems exist within our little village and that we work our socks off, day-in day-out, to help people understand the issues.

Surely a better approach would be to point out that Paul has a general point about the opaque nature of charges? Recognise there are some flawed and clumsy analogies. But also recognise that many potential customers have similar views.

After all: knowing the barriers to engagement is vital in overcoming them.

Henry Tapper is right in his reaction piece here.

Paul is actually doing us a favour.