What I wouldn’t give to hear the sort of anecdotes John van Der Wielen is going to share with his fellow Australians about his time in the UK when he gets home. The former Clerical Medical MD has been on a sort of a job share with Andy Briggs, who is moving to the general insurance bit of Widows replaced on life, pensions and investments by Phil Loney.
There has of course been plenty for them both to do in the merger. Van Der Wielen may not have been the only Australian involved in UK financial services but I can’t help thinking it is a shame that we have lost someone in a leadership role with a very strong insight into the Australian market given that the UK market is going to shape into something very similar in a few years time with fees, wraps and something close to compulsory pensions. Advisers will also be a bit concerned that someone with Brigg’s decades’ worth of experience is moving to another part of the business. Most IFAs, certainly those at the roadshows I chaired for Widows earlier in the year, would have thought that one of them would have got the job and will be disappointed that it is neither. That is no slight on Mr Loney who may well be excellent – but advisers like to know the people they are dealing with even as far as the rarified heights of MD within a big bancassurer. However organisations such as these have their own inner logic. It could simply be policy to move top bosses around to make sure there is always a selection of internal candidates with wide experience of the business in case they move on to higher things with the firm. Indeed it would have been a much bigger blow from the adviser’s point of view if the brains trust featuring the likes of Ian Naismith and Anne Young had been broken up instead.

The JP Morgan warning about portfolio planning tools leaving clients in gilts at exactly the wrong time is a timely one.
Whatever the theory behind these tools, the practical experience during the crisis has left a lot to be desired. As a solution to stopping those pesky fund pickin’ IFAs from pickin’ last week’s best seller these tools still have a hugely important role.
But clearly a debate needs to be had first about how much of a tactical or as some say a common sense overlay they need.
There also needs to be debate about exactly how these tools fit with an advisory business where clients under the RDR may be paying for an annual review but where markets, or actually in this case, economics and events turn against them.
Some might say this is a good time to start trying to move most advisory clients to a discretionary basis – for others with smaller portfolios why not just put it with Chatfeild-Roberts? After all everyone rates him, his employers not the least given this week’s news.
Some have defended the tools saying it is how you use them that counts. That is true almost of all things and yet, I think there is a need for a proper industry wide debate about how you use them and that should include the providers and designers of the tools too.
Advisers need to think about what the tools cannot do. I can think of at least two very big picture things for now. They cannot guard you against spectacular economic changes and they cannot tame markets so that they always provide investors with the right sort of risk adjusted returns. They can only help.
But perhaps, we should leave the big picture stuff for later. Right now advisers should be checking out whether they have clients heading for another bath. Personally I wouldn’t test their patience. Unlike several things that have happened recently, this potential little setback is eminently predictable.

One Response to “JP Morgan warning shows it’s time to ask what portfolio planning can’t do”

1. John Blackmore says:

   February 5, 2010 at 3:44 pm

   I dislike these tools and models intensely. They pander to the human need to feel in control. They give the illusion that advisers are not only in control but can somehow influence the future. They also get in the way of thinking. The Adviser needs to know his client and to then construct a portfolio that is reasonable and stop looking for perfection. The next task is to get the message across that we are in the long run business. short term shocks should by and large be ignored with the focus on 15 to 20 years or more. anything less than 5 years is pure speculation. Next we must resist the urge to meddle ( rebalance) which is often no more than another short term hang up. A spread of actively managed multi-asset funds ( cash, fixed interest, property, equity) left alone for long enough stands as good a chance as anything else and need not cost the earth.

   Reply

A recent reassessment of the risks of several funds have caused some bad headlines for the Barclays mult-tie in Money Marketing. While new sales embraced the new risk system, some clients/customers who had already invested were not informed about the change.
Barclays seems to regard this as not a significant problem but I do think it is worth challenging Barclays on how it sees itself.
You could conjecture (I am about to) that an old model bank operation would have been expected to offer a range of products for investing/saving and insuring. It would offer this to its clients across the income scales. It may not have been expected to offer quite the sort of level of advice as an IFA but it always had the pockets to compensate if things did go wrong. It was efficient at distributing to large groups, so why not use it to close the various much-discussed gaps. In this model, clients or certainly many clients were probably not clients but customers. I might dare to suggest that some early RDR thinking at least had some idea of banks doing this. There might be higher IFA or financial planning levels of advice offered higher in the structure to the better off.
However let’s try and work out the second bank model. Say for sake of argument that a new model bank operation isn’t going to be able to do this anyway.
Its clients are meant to be clients. Charging structures are new style, relationships are ongoing although, I think to date, the details still need worked out. I don’t think a straight read across of adviser charging is possible but some form of ongoing payment of advisers must surely be required rather than anything that apes commission. There is as much regulatory and FOS coverage as for any other adviser although the restricted/independent divide may be significant. Oh yes and higher qualifications.
The first description to me seems to relate to a sales organisation primarily and of course a very big one at that.
The second, even if contained within a bank, and with whatever upsides and downsides banks have, seems to relate to an ongoing advisory business.
I accept this is my characterisation of two ways of regarding banks.
I think it is arguable that some of Barclays’ thinking lends itself the first description rather than the second certainly if they think it is debatable about whether they do not have to advise on a change in its risk assessment for old sales rather than new. But at the moment the regulator wants the second system so Barclays maybe needs to get its head round that.

Transact has always seen itself as a wrap apart that stayed clear of what might be called traditional financial services and its perceived ills. I think Transact would say that was the whole point. They definitely came up with a service that New Modellers needed at just the right time.
The latest missive to members of Transact is a case in point where the MD Ian Taylor discusses the myths down the years that have been spread about the business by rivals. I think we have heard some of these before. He then declares that with the RDR a couple of years away, some players are making hay before they have to start competing on quality rather than using commission.

He pulls no punches. Here is Taylor’s asessment of the three tactics.

Tactic One: Mislead the market

Examples: Spread rumours about FSA “thinking”. Propagate more myths about competitors. Recast assets under management numbers to create impressive sales “histories”. Create highly selective and flattering “comparison” sales aids. And so on…

Tactic two: Manipulate the market

Examples: Refuse to allow total portfolio value discounts to be taken into account when illustrating wrap platform pensions. Operate at a loss/cross subsidise to create artificially low and unsustainable changes. Pressure the media. Use patently absurd growth rates in pension illustrations. Pay overrides to third parties. And so on…

Tactic Three. Control the market.

Examples: When all else fails, buy the distributor.

Taylor says that he has issued this in response to concerns raised by firms using Transact. He is also looking to get more responses and examples of poor behaviour.

I find myself in two minds about this. I have never seen anyone land a critical blow on Transact. It has to be respected as the leader and one of the first movers in the UK. Its service and its advisers stand scrutiny.

It is interesting that we have seen similar comments from Nucleus in the past. The great divide that has opened by between new and old IFAs appears to include wrap providers too or as they would probably argue wraps, platforms and fund supermarkets.

I don’t agree with all the list. I’m afraid I’m long past worrying about providers buying IFAs. It gives them capital and nothing I have seen has looked like a particular abuse of the independence rules from say Origen or Bluefin for example. With pressure on the media which I assume must be the trade media – well my experience would suggest that most editors are not pressured by the commercial side of things, and if they are manipulated by PR most are aware of the risks involved and try at least to give both sides though the web has brought a new set of time pressures.

However the other criticisms are important. There is of course a risk of reputational damage to the whole of financial services if there is a last free for all on commission.

Perhaps that loss making business is seen as a calculated gamble because providers or platforms believe less money will move post 2012. I have always found it difficult to care too much about shareholders’ losing money unless it was so much that they damaged policyholders or the whole system.
But if there is massive client detriment, then it is important these issues are raised. That includes a fair system of competition too.

However, it would be better if Transact could point out the examples specifically. Then the accused would have to defend themselves and we would really have an argument then.