Tuesday, 19 May 2015

Who rules Britain?

According to Steve Hilton (in his recently published "More Human") an insular ruling class is threatening Britain's democracy.

A small elite of MPs, business bosses and journalists allegedly controls Britain.

One's first reaction might be a "No really? Wasn't it ever thus?"

A second response might identify a different form of conspiracy. Not a conspiracy to effect control, but to convince the man on the Clapham omnibus that someone really is in control.

In truth our society, already a complex system in its own right, is now so much part of a hugely complex global supersystem that control is probably impossible.

Steve Hilton's "elite" struggles even to set the agenda, let alone determine material outcomes. 

Yet it remains in the interests of politicians to be rewarded for supposed influence, as it is in the interests of overpaid bosses and attention-hungry journalists.

And ironically Mr Hilton is right at the centre of this conspiracy.

As befits a member of that elite.

Monday, 13 April 2015

Crashing through the gears: pension freedoms, regulatory aftershocks and systems investments

For the UK retirement industry, investing in modern technology to improve accessibility, reduce costs and improve customer outcomes should be a no-brainer.

Smartphone apps and DIY tools will be essential if holders of modest DC pots are to be able to make effective decisions affordably.

But the current regulatory uncertainty, combined with the prospect of continuing political and fiscal change, is not making it easy for advisers and providers to shape investment decisions about systems. 

If you were expecting a coherent response from Government departments and agencies to the freedoms announced in  Budget 2014, you will have been disappointed. The gears have not been meshing well.

The regulator has been trying to catch up. The thorny question of how to reconcile customer freedom and “caveat emptor” with the industry’s KYC, TCF and suitability obligations was addressed in the FCA’s Finalised Guidance on Retail Investment Advice, published in January, which aimed to clarify the boundaries between different categories of advice. 

Much of the steerage offered by the FCA is theological rather than practical. The desired precision on regulatory boundaries has not been provided, and the judgement and perceptions of FOS, the courts and customers remain significant unknowns.

The biggest risk is that well-intentioned advisers and providers will lack confidence in helping customers unable or unwilling to pay for advice. And that reckless or badly-intentioned practitioners and firms will regrettably not be on the receiving-end of suitably proportionate and timely enforcement.

The FCA’s Final Report on its Retirement Income Market Study, published in March, added to the industry’s work queue. The job list now includes wake-up packs, annuity quote comparison facilities and a pensions dashboard. And Retirement Risk Warnings, which need to be inserted at the right place in the “customer journey”.

The FCA now believes that firms should provide information about all retirement income options, not just those option(s) they offer. And it observes that current provider systems may not adequately support blended retirement income solutions.

All of this matters, because a lot of people want to exercise new freedoms. There are millions who can’t access advice either because they are not able or willing to pay.

Systems have a crucial part to play. Nirvana for the under-served would be direct-to-consumer, DIY, lower-cost help using automated tools.

But organisations are bemused about what to do. It’s technically possible to build the required automated facilities. But where’s the regulatory safe harbour? And can the additional work be slotted into the queue?

Organisations need to find a practical way forward:

Making balanced business decisions. Some firms have approached their spend on smartphone apps in the belief that “we’ve got to have one, because everybody else has got them”. A more sober consideration of the business case will be required, taking account of the extreme market uncertainty. How many people will use the app? how will we drive traffic to it? what revenues can be anticipated? if we invest in this area, what else gets squeezed out?

Taking account of available capacity and capability. The workload associated with maintaining legacy processes and systems could crowd out the new, market-driven demands. Firms should focus for the time being on identifying and nurturing critical capabilities, including scarce technical,  marketing and risk management skills.

Collaborating. Many of the things that need to be done will not be delivered by individual firms acting alone. Comparative quotes and pensions dashboards will require standards, messaging infrastructure and hubs to enable data interchange and assure security and data protection.

Experimentation and learning. Few firms will get it right-first-time. A realistic view of future prospects will need to factor-in some wasted effort and unforeseen regulatory events. This points towards an experimental approach, with much piloting, testing and talking to customers.

Tuesday, 22 April 2014

Is effective governance a sufficient remedy?

Before we become too exercised about the peculiar governance arrangements of the Co-op Bank, should we not remind ourselves that three other UK banks (Northern Rock, RBS and Lloyds) have sustained losses of a considerably higher order?

Yet these had the conventional governance structures that Lord Myners and others are trying to impose on the Co-op.

Could it be that by nature of its complexity, contemporary banking is simply ungovernable?

And by extension, beyond effective regulation.

Friday, 21 March 2014

Pensions reform: we’re all rentiers now

It is possible, with some imagination, to infer a thread of continuity which links George Osborne’s revolutionary announcement on Wednesday to the Labour Party’s manifesto for the 1959 General Election.

That manifesto proposed giving council tenants the right to buy their homes. Michael Heseltine enacted that promise.

The privatisations of the 1980’s and demutualisations of the 90’s invoked the spirit of a share-owning democracy and I-want-it-now consumerism.

In this century, Callum McCarthy’s Retail Distribution Review is attempting to make the advice process work for the consumer, rather than providers. Lord Turner’s “work longer, save more or accept lower income in retirement” requires everyone to take responsibility for their future in retirement.

The proposed pension reforms are in tune with other changes aimed at reversing the flow of causation in the industry, including the FCA’s drive to make markets work better for the consumer. They could help rebuild the psychological contract between people and their pension, ensuring that the word “pension” will be no longer a profanity.

Perhaps, in the light of the Chancellor’s declaration which reinforces ownership and responsibility, we can all be rentiers now. Or at least aspire to that status.

The implications for the retail investments industry will be very big.

This is a bigger bang than RDR, because it will affect nearly everyone: all ISA holders, and all auto-enrolled employees.

Friday, 7 March 2014

To each according to his contribution?

As the ratio between the earnings of the highest and lowest paid continues to grow, voices of dissent are increasingly strident. 

The average ratio of CEO-to-employee pay has risen from 47 to 128 over the past 10 years. There are some striking outliers.

Reckitt Benckiser’s CEO is paid 1,375 times as much as Reckitt’s average worker; the CEO of Tesco is paid 900 times his company’s average wage.

John Pierpont Morgan, founder of JP Morgan, once said that no-one at the top of a company should earn more than 20 times those at the bottom. Among FTSE-100 companies last year, only two chief executives met Morgan's test.

What would be fair? In principle, perceptions of fairness and legitimate differentiation of earnings might relate to three factors: personal risk, labour market forces or contribution.

The idea of a calculus relating reward to risk may work in the capital markets but it’s just silly in the employment markets when the only material risk a chief executive faces is the loss of the very earnings he cannot justify.

The labour market arguments have some force in general terms but are probably overplayed in the boardroom.

The idea of contribution is currently too hazy to be useful.

Yet it is the notion of contribution that lies at the root of feelings of fairness, of equity and of the legitimacy of differences in reward.

"To each according to his contribution" is a principle considered to be a defining feature of socialism by its advocates. It refers to an arrangement whereby individuals receive compensation based on the amount they contribute to the total output of society (also known as the "social product") in the form of effort, labour and productivity.

Web-based technology would permit very large numbers of people to be engaged in setting up the parameters of an evaluation framework, and in subsequently rating jobs.  The democracy of large numbers would give social weight to the outcomes. 

In fact this very idea of a “national job evaluation scheme” was mooted in the 1970’s and 80’s, but the technology of the time did not allow the participation of sufficient numbers to give the results sufficient political clout. Perhaps its time has now come?

Get Mike Thomas's thoughts on how to crack the remuneration conundrum

Wednesday, 4 December 2013

UK education lagging behind the world's best?

I invite you to try this sample of the Pisa maths test at http://www.oecd.org/pisa/test/

The tests and results are interesting, for several reasons.

The questions are surely ridiculously easy for a 15-year-old, even at the highest test level.

Sub-common entrance standard? At this level of intellectual challenge, errors due to carelessness may be as common as errors due to incompetence.

As a likely consequence, some 29 countries score at or above 90%, which might put the differences above that score firmly into the zone of statistical error.

I still don't understand the sampling methodology, and as any statistician will say, the main threat to proper inference is the risk of sample bias. Is it really possible to use a common sample frame across so many disparate communities and cultures? 

Shanghai may score highly among the kids that go to school. But what about the ones that don't?

In other words the Shanghai results may be better compared with those from UK private school students.

I have no idea how our educations standards really compare internationally, and I remain uninformed.

Wednesday, 9 October 2013

Academic social psychology is mostly bunk

You may have caught a wireless programme on the BBC Home Service last week in which the Hawthorne effect was debunked. 

Milgram’s notorious  “torture” experiment findings were similarly trashed in The Times yesterday. 

I always suspected that academic social psychology was mostly bunk. 

Two of the most famous studies now appear to demonstrate little more than poor experimental design, a predisposition to conjure corroboration from experimental noise and positive credibility among readers.  

Any guesses as to the next sacred cow to be revealed as horse flesh?