Blog Archives

Talent Is For Losers

2/27/2014

"Yea or nay on social media? “professional, skilled marketers will always get better results.” http://bit.ly/SMRecYN by @EMRrecruitment"

The above tweet was tweeted by yours truly in reference to a blog article by a recruitment firm extolling the virtues of hiring professional marketers to manage a firm’s social media.

My tweet kicked off a fierce twitter debate and resulted in three, yes ladies and gents, count it; 1, 2, 3 expert opinions, all published on Adviser Lounge, the place where financial advisers lounge about and talk shop (clue’s in the name, sort of).

Here’s a thing that really got me thinking and the think that I got to thinking was this: Talent is for losers.

It was thanks to Jon Pittham’s excellent article "Social media professionals: worth their weight or a waste of time?" in which he referred to those of us who were involved in the Yea or Nay debate regarding social media:

“For them it is natural and authentic: it doesn’t come quite so easily to many.”

When I was young (relax, this’ll be a very short “when I was young" story, bear with me please).

When I was young, I was often called "a natural" at a certain sport. Heard it all the time. "You're a natural, you have so much talent" Guess what? I never properly excelled at said sport and quit in my late teens. Looking back now, I realise it was because I began to believe that talent made me good and therefore there was no need for hard work. Then I came up against someone who had worked harder and probably had less talent, and I lost.

Now let’s return to social media and the web. Whatever criteria you want to look at, the Banker’s Umbrella is a success. In addition to my mother, it gets about 30 000 unique readers a month. That’s not too shabby for a former, used to be fat, 40 something private banker who has no talent at this internet stuff.

I was “talented” in one thing and became a failure. I’m a complete amateur in the other and became a success. Why?

Simple answer: Because I knew I was useless from the start, I needed to learn this thing called social media and I had to work my silk boxer adorned derierre to become good. And I did.

Or perhaps I just got lucky?

Luck has nothing to do with it. Now, If you’ve read this far, I have a confession to make. You are about to be told a secret: What seems random is not. The Banker’s Umbrella (sorry to disappoint many) is not just my random musings. It is structured, carefully planned and executed with the help of technical tools.

But what about the banter? Sure, I discuss openly on social media, but everything I discuss is based on a very strict policy.

I could write down on paper what I do, you could follow it and within a year you’d have a blog more successful than mine. That’s the truth. No talent involved.

Then we come to the most important point that Jon makes.

“I’m sure even those great at social media now once ‘hacked’ and ‘sliced’ a little at social when they started”

Exactamundo! As the Fonz says! I hacked and sliced at social media so much in the beginning that I would've put a butcher to shame.

Remember! This is the formula to success: Zero talent + 100% hard work + a bunch of mistakes = Exceptional results.

That’s why, if you are going to employ someone to help with your social media marketing then they absolutely, positively, must be, without a shadow of a doubt, someone who has “hacked” and “sliced”.

Recruitment firms for example are not doing this. They are afraid of the hackers and slicers, which means they are failing miserably at picking the right candidates.

If your candidate for a marketing job cannot tell you what mistakes they have made on social media and what they learned from those mistakes, guess what? They are going to make those mistakes on your time and with your money and with your company’s name on it.

7 Comments

Active Vs Passive Investment Strategy?

2/25/2014

5 Comments

This morning I read an article from a finance fellow I have a lot of respect for. He always writes great articles on investing, and he's not afraid to say what he thinks, and he clearly thinks a lot. He probably eats a lot of fish too, because when he does speak his mind, it’s always clever stuff.

That man is Abraham Okunsaya, and his article “Who do you think you are? Warren Buffett?” can be found here on the Adviser Lounge.

It’s about active versus passive investing. Passive is where you just allocate your money into one of a basket of index linked funds. It’s active when you pick and choose, and try to beat the indices. The gist of the article is that people like Warren Buffett are smarter than you when it comes to active investing; therefore, you should foughedabouddit and stick to passive investing.

“… the default recommendation should be index funds and selecting an active fund should be only and only where there is demonstrable evidence that it adds value.”

Now, I certainly don’t want to contradict Abraham and I won’t, but I will, but I won’t, but I will.

In most cases, the advice to the client to choose an index fund is the right thing to do. I would often choose this approach for my clients.

Further, as a rule, I don't give investment advice to friends that way they remain friends, but when pressed on the matter (and suitably fortified with that stuff that the bearded bloke from Nazareth turned water into), I tell them to do the following:

Get some index funds.
Dollar-cost average those until you are old and grey and require a mistress.
Rebalance a couple of times a year.
Rebalance after a financial bust and go directly to the pub to calm your nerves.

So as you can see, I definitely agree with Abraham 100%. I'm so confident in this form of investing that it's how my children will be able to afford to go study in any university they please.

But, but, but. Let’s philosomophosomosise a bit. You know, like those great thinkers: Socrates, Donald Trump, Al Gore, and John Lennon, and let us for a moment imagine a world in which there are only index fund investors.

Now you may say I'm a dreamer,

But I'm not the only one,

I hope someday you'll join us,

And the world will be invested in a single equity index-linked exchange-traded fund.

Now, if we do ever get there, think for a moment about the repercussions. If the primary form of investment in the world is an automatic computer algorithm generated transfer of assets into a basket of companies then these questions should activate our brain cells:

-   How will companies raise capital through the markets?

-   What happens when there is a crisis and people start to redeem their funds?

-   What happens to the fee structure?

-   What about counterparty risk?

I guess what I’m asking is: What the hell will happen to the financial markets? And, more importantly, what will happen to my children's college fund?

I don’t pretend to know the answers to all the above questions, but they sure do bear thinking about. Do they not?

So, before we all decide that passive investing into index-linked funds are the Holy Grail of investing, let us remember that for them to remain successful and viable we need a market where there are still investors willing to take a punt and be active.

Someone needs to take an active position on the opposite side of our laziness.

5 Comments

The Compliance Profession – Where To Now?

2/20/2014

1 Comment

For those of you who follow this blog, you might have noticed that I never miss an opportunity to take a swipe at the compliance industry.

But at heart I'm just like a multi-party parliamentary democracy and I'm all about consensus. It is with that spirit of equality and fairness amongst my fellow finance peers that the managing partner of Compliancy Services UK, Ben Mason has been kind enough to guest blog about the wonderful world of compliance and what the future holds for the industry.

As you can see from the photo and read from his Twitter feed @BenMJMason, he doesn't just have a fancy title, he's a handsome so and so with the gift of the gab so you should definitely follow this fellow.

Also you can connect with his company, Compliancy Services UK on Twitter, Google+ and LinkedIn.

Now with the official protocols adhered to, I'll let Ben stare into his crystal ball and tell us the future for compliance.

The Compliance Profession – Where To Now?

The compliance profession finds itself in unchartered waters. Once reviled as the ‘business prevention’ department, competent compliance professionals are now heavily in demand. The reasons for this are easy to identify. The question is whether the profession can support the demand placed on it? And if it can’t, what will the long term cost be to regulated firms and UK PLC more broadly?

Last autumn the Wall Street Journal reported that two in five US regulated firms has compliance staff shortages. In October, the FT claimed that some companies were so short-staffed that they faced the threat of closure, while Reuters has reported that a third of UK financial services companies felt compliance staffing constraints would restrict their business prospects.

Compliance: The New Must-Have Function

Most organisations have, in one form or other, a range of support functions: HR, finance, IT, marketing, etc. For financial services companies another has been added to the list: Compliance.

Firms’ requirements of their compliance functions are evolving at a phenomenal rate. This asks a set of questions of the compliance industry that it seems unlikely to be able to answer. Most obviously will sufficiently high-calibre compliance resource be available to deliver what the financial service sector needs?

I’ve never seen a survey of what CEOs expect from their compliance functions, but if I did I would expect it to include:

The ability to identify the impact of current and future regulatory changes on the company’s strategy and business plan
The implementation of monitoring and reporting processes that identify and mitigate regulatory and business risks
The ability to evaluate the business impact of a wide range of regulatory changes
And most importantly, the respect and leadership to take colleagues on a journey towards a new ‘compliance culture’

Of course, as we know, what some CEOs want is a compliance function of ‘yes men’ who are not able to provide the balance between constructive challenge and commercial support – and generally these are easily found by over-promoting someone not competent for the role. This can be a short term fix at best.

Supply and Demand

The compliance profession has developed sufficiently for us to say that there are indeed many able compliance staff, with some or all of the required skills. However, what everyone seems to agree on, is that supply is not growing as fast as demand. This calls into question whether the production line to meet the future requirements is robust enough.

So what has happened to place additional strain on the compliance industry? Globally, regulators are adopting a harsher stance, with penalties for non-compliance being severe enough to be of real detriment to a regulated company. In the UK, the 1st April addition of up to 70,000 (and no one really knows how many – it could be half that number) FCA regulated Consumer Credit firms to the existing 27,000 clearly brings a level of demand that’s totally unpredictable.

Who’s fixing the problem?

The disappointing thing is that nobody is really working to address this issue. It is apparently not the brief of government or the statutory objective of regulators to intervene (although, as was well documented at the time of the crash, this is an issue which affects regulators as well.) I am not aware of any politician championing the cause. This is likely to reflect the relative impotence and lack of resources of compliance industry associations, who might otherwise be lobbying government, compared to their practitioner colleagues.

Additionally, as a relatively new discipline, there is little academic research into the impact and role of the compliance function. My consultancy, Compliancy Services, is sponsoring a Cranfield PhD into the impact of regulation, but this type of project is relatively unusual.

Such variations in demand and supply might just be considered to be all part of a market sorting itself out over time. However, for the best long term outcome, I believe a more structured solution and career path for compliance professionals would be in everyone’s interest. Consider how the accounting and legal professions develop their future population through a proven qualification model, combining several years of practical experience with relevant formal qualifications, and fantastic backup and support. There is simply no sign of an equivalent compliance career development plan on the horizon. The current best alternatives are either very limited part time diploma style courses, or academic Masters degree courses. Worthy though these are they are not the same long term vocational development options as offered in other professions.

The Challenges Ahead

One of the great compliance challenges is that its scope is so broad that it welcomes professionals from a wide range of other backgrounds. I hold an MBA and have found my commercial and strategic experience of huge value within a compliance career that didn’t start until my 30s. Many compliance staff have legal or accounting qualifications, both of which have an important compliance role, as does the experience of practitioners, operational staff, risk managers and so on. Arguably this is indeed the challenge: the range of tasks that compliance staff are asked to carry out makes formulating a standard development programme very difficult. However, I believe there are ways of addressing this and a core set of competences could be identified.

There is no easy answer unfortunately. The entire regulated sector needs to recognise the challenge, encouraging new entrants and training them diligently in the broad range of technical and commercial skills the best compliance staff need. One thing that seems certain is that firms unable to staff their compliance functions properly, whether with internal or external staff, are likely to suffer, ultimately to the detriment of UK Plc.

My hypothesis is that:

The supply of highly-skilled compliance staff is not meeting demand, pushing up costs of compliance for regulated firms
However, when in post competence compliance staff can add significant value to a company
The industry needs to collectively address this issue
A structured vocational qualification is the long term way forward

I would value others opinions and to know who else is interested in this important subject for our sector. Get in touch by following Ben Mason on Twitter @BenMJMason and connecting with Compliancy Services on Twitter, Google+ and LinkedIn.

Amazon.co.uk Widgets

1 Comment

Best Practice for Financial Services on Social Media

2/19/2014

56 Comments

FFIEC social media guidance briefing for UK financial services firms from Danielle Sheerin

Social media for private banking, wealth management and financial services is a fascinating subject, for the simple reason that an industry based on the ability to build relationships remains so resistant and scared out of its wits with this "new" thing called social media, which is in fact all about building relationships.

The problem of course is at the top. When companies are being managed by old fogies who have trouble sending email or text messages, how can they possibly comprehend this world wide intermenetty thing? And anyway, wasn't it invented by some nasty tax raising, big government spending Democrat? No thanks! When's lunch? Do we have time for an aperitif? What about golf afterwards?

Well then, my dear readers. Above you have it. A great slide show from the consulting firm Nixon McInnes. These slides are produced by Danielle Sheerin and tackle the big scary monster that is social media from a financial services company's perspective.

My argument for a very long time has been that there is no real legal impediment for financial services firms to say pretty much whatever they like on social media. It's just that nowadays we have a growing monster in the middle-office called compliance who sees everything as a risk. If there's one thing that gets the pulse of a compliance officer to do the quick step and send the blood down south it is the subject of risks. Risks arouse a compliance officer like a Louis Vuitton shop arouses a Russian oligarch's 18-year-old mistress.

If compliance departments could have their way a bank would have no logos, no phones, no internet access and no staff (apart from the compliance department and a management to report to).

Be that as it may, the so called "risks" need to be discussed and addressed. There will be umpteenth hours spent in meetings and gallons of bad coffee imbibed while discussing if it's okay for Walter Worminson (client advisor) to tweet a picture of Mrs. Worminson enjoying a glass of Merlot on their holiday in France.

Is Walter promoting drinking?
What if someone under the age of 18 sees the tweet?
What if someone in the US where the drinking age is over 21 sees the tweet?
What if someone in Saudi Arabia sees the tweet?
What if Walter could be seen as an alcoholic?
What will Health and Safety say?
Walter is tweeting while on his holiday. What will the union say?
Are we infringing on the wine producers copyright by showing the tweet?
Are we promoting the French by allowing the tweet? I hate the French.
Mrs. Worminson is a babe, are we exploiting women by allowing the tweet?
How did Walter ever manage to pull Mrs. Worminson?
Maybe I should get Mrs. Worminson's approval for the picture?
I wonder if there are anymore pictures of Mrs. Worminson?
Was there a beach where they were holidaying?
Anyone got Mrs. Worminson's number?

If you work in financial services it's worth going through the slides twice. Because as sure as a banker likes big German cars and expensive Swiss watches you can be sure that industry wide social media guidelines are coming to a jurisdiction near you very soon (if for no other reason than to generate substantial revenue for consultant firms).

56 Comments

Europe Hates Scotland

2/18/2014

3 Comments

Photo Credit: Flickr/madmonk111

This week Jose Manuel Barroso told the Scots they are not welcome in the EU. At first this seemed a tad rude, but then again, if you stop to think about it for a moment, it makes perfect sense.

If Scotland were to join the EU, just like all member countries, they’d get a whole bundle of quota jobs. These jobs would include the whole spectrum from lower tier Eurocrats all the way up to the cherry on top of the cake, a Commissioner's position.

Then we come to the problems within the EU, a list so long that it would put Paris Hilton's Mastercard bill to shame. But for the sake of brevity, here are just a few:

For the past 19 years has received a critical report from its auditors over the handling of its budget
Has a “breathtaking” corruption problem
Once a month packs up and goes to Strasbourg and back to do exactly what they do in Brussels. Resulting in:
- Costs in excess of EUR 100 million per year
- Sending about 4000 Eurocrats
- 6000 boxes of documents in trucks
- Creating nearly 20 000 tons of unnecessary CO2 emissions per year
Best of all, let Greece join with open arms.

The Scots are revered as a people prudent with money (Oi, oi, watch it with the RBS jokes) and considering the above financial irregularities of a very regular nature that are the very fabric of the EU, it becomes clear why Barosso doesn’t want the Scots in his cozy cabal.

Barroso's biggest fear is the arrival in the EU of bunch of straight talking Scots saying “Och aye Jose, Ah dinnae ken this was such a shambles! But Dinna fash yersel. We’ll Gie it laldy!”

Whatever opinion you may have on Scotland's referendum, it is for the Scots themselves to decide how they want to proceed as a nation. No one else.

Having the EU's Grand Poo-bah Mr. Barroso bullying a nation about to exercise its fundamental right to democratically decide its future shows the true direction that the EU is taking. One of a sense of superiority, arrogance and an attitude to democracy that is solely rhetorical.

3 Comments

Are Private Banking Customers Lazy?

2/17/2014

2 Comments

Photo Credit: Flickr/John Biehler

In order not to alienate any potential clients, I have decided to do what any self-respecting private banker does and make like a coward and hide behind the coattails of someone else.

So thanks to Irk Hudson for this guest blog post on a very interesting subject. Title says it all really.

Take it away Irk.

Are Private Banking Clients Lazy...

...or just too wealthy for DIY fund management?

I know a few individuals who reside comfortably (more or less) in the 'high net worth' category, defined as people with 'investable finances in excess of US $1 million' (thank you Wikipedia). Some of these individuals make use of private banking facilities and others do not.

The question is: why do some well-heeled people consider private banking a necessity of life up there with oxygen and antique motors, while other similarly well-heeled people manage to do for themselves what private bankers do?

Pain

One of the biggest deciding factors when an individual is contemplating how to manage all of their ill-gotten wealth is their pain threshold - 'pain' in this context referring to the time and effort required to ensure their wealth's wealth creation potential is maximised at all times.

One only needs the most basic understanding of financial markets before they will gain an appreciation for the complexity of those markets and the speed at which they change. Volatility in markets makes it possible to build up wealth, but that same volatility is what makes self-management extremely tricky - if you don't have the time or the inclination to put in the effort.

A person I'll refer to as Acquaintance #1 (A1) is firmly in the self-management club and always has been. During his working life A1 accumulated wealth the old fashioned way through disciplined frugality. But A1 simultaneously learned about financial markets and increasingly cracked the whip, making his money work harder and harder for him. This took a great deal of time, a great deal of effort and it also required an acceptance that his evolving knowledge would at times prove deficient.

Sometimes things wouldn't go as planned. A1 is now well and truly into retirement and can look with pride at the results of his wealth-building prowess. But he would be the first to say that, after a long and successful career as a mechanical engineer, he had to embark on a second career as a financial guru in order to achieve the investment results he has.

Tell me what you want, what you really really want

Another question to ask yourself when deciding if private banking is a necessary evil is, very simply, 'What am I trying to achieve?' This is so important that you can't properly assess your pain threshold until you answer this question. In my experience people with the least will run from risk as a snowball runs from hell.

If you have more modest wealth, and modest expectations, and a desire for stability above all else you will most likely be able to hack the pain of managing your assets yourself. This is because you will be more likely to make relatively simple, relatively long-term decisions that do not require constant revision.

The opposite holds true for those with greater assets. These individuals will have greater appetites for risk and consequently more time and effort will be needed to ensure their assets are working at full potential (as well as ensuring their assets don't disappear altogether!).

Key point: As sure as day follows night and JFK was not killed by a lone gunman, as your wealth grows your expectations and appetite for risk will grow. The smart investor will have clear objectives and will recognise when their pain threshold has been reached. When it has, it's probably time to say goodbye to DIY investment management.

2 Comments

A Tad More On Wealth Management Fees

2/14/2014

0 Comments

Photo Credit: Flickr/Conorwithonen

Following a bit on yesterday’s post about private banking fees. David Jones and Merryn Somerset Webb pointed me on to an interesting article published in MoneyMarketing.co.uk by Sam Macdonald “How much are they charging? New research reveals what the big firms cost”. It found that annualized fees for some wealth management providers exceeded 6%.

Anyway you spin it, this is daylight robbery. The reason you have your wealth managed is to make money. And if we get a little technical, when paying for someone to do it for you, you should be getting some form of additional return, by that I mean a return in excess of a passive market investment.

Let’s take a simple example. The S&P 500 is a commonly used equities benchmark. If we take the returns for the S&P 500 for the past 50 years (adjusted for inflation) we get an annualised return of 5.9%. That means if your mum and dad invested $ 1000 in the index in the early sixties, when you were just a newborn little mustard producing chubby bundle of joy and you hadn’t touched that investment until now (when you’re a little rough around the edges, grey, Merlot sipping 50 year old) that money would have ticked a steady 5.9 % return, year after year, interest upon interest. In real money you would have had an excess of $18 650. Not too shabby methinks. Go on, treat yourself to a holiday in Jamaica and lots of Appleton Estate Rum. Yah-man.

Now think about this. If your parents would’ve given that $1000 to one of the providers charging in excess of 6% what would’ve happened to your money? It would be disappearing is what. You'd be making a steady loss.

What’s my point? My point is this: If you are being charged more than the historical return of the market you will not make any money. You are guaranteed to lose money. In fact, taking a trip to Las Vegas and betting it all at the roulette tables gives you more chance of winning.

Know thy fee structure… and always bet on Black.

0 Comments

How Private Banks Make Money. Part III

2/13/2014

0 Comments

Photo Credit: Flickr/Dave Herholz

Here is the third part of the “How Private Banks Make Money” series (click for Part I and Part II). These fees are often confused with safe custody fees; however, it is a completely different kettle of fish: Portfolio Management Fees.

Clients of a private bank have two options. They can make investment decisions themselves, with help from an advisor/private banker who they consult and who makes suggestions, but it is the client who makes the final decision. Then there is the other option when the client hands over the investment decision-making process to the private bank. For this service, the banks will obviously charge a fee, known as a portfolio management fee.

First, the bank will make a risk profile of the client; this is to determine the right asset allocation (cash/bonds/equities/exotic fruits) for the client’s personal risk tolerance.

Private banks make much of their “special super dooper extraordinary brilliant tailor made for you because you are so special and unique” risk-profiling systems. In reality, it’s just a standard form for you to fill in, which will inevitably lump you into one of three basic types of portfolios:

Low risk
Medium risk
High risk

Some banks will have a few others thrown in to make them seem special, but those are just like different coloured M&Ms.

The one thing the bank will do is make it very, very difficult for you to compare their performance to their competitors. They’ll have a set of benchmarks to compare their portfolio to, and I’ve seen some real corkers. They might have several different strange benchmarks that if you Google them, you’ll be lucky to find them. So, here’s one piece of advice: if you can’t find the benchmarks yourself by a quick web search, and there are more than a handful of them in the bank’s model portfolio, tell the bank to take a hike and take your business elsewhere. Performance comparison should be an easy thing.

Then we come to the fees. Me, oh my, oh me, oh my. In comparison to the benchmarks, the fees will read like a management consultant's guide to accounting. The idea is to make it difficult for you to comprehend and compare.

You’ll be given a couple of choices, so it all seems pretty straight forward:

All in fee (includes all fees … kind of)
Performance-based fee

All In Fee

It’s pretty self-explanatory. You pay X amount of assets under management as a fee. This should be around 1%–1.5% of assets under management (AUM). If it’s under 1%, then something is fishy and not everything is being revealed to you.

The way these fees can be padded is that trading is done through the bank’s own trading desk. This basically means that desk is occupied by the chap sitting next to your portfolio manager. Although he has lunch with your portfolio manager nearly every day, and their wives are best friends, he’ll charge for the execution and that fee is taken straight out of your portfolio.

The other things to pad the fees with are bonds and FX. When traded through the bank’s own book, they can end up taking a real big bite out of your portfolio without you being any the wiser.

Legislation is cracking down on these kinds of issues, but particularly FX is proving to be difficult. Hence, you should be looking out for a lot of FX hedge positions, and the buying and selling of investments from one currency to another. If this is happening in your portfolio, then alarm bells should be ringing.

Performance-Based Fees

These normally follow a small AUM fee plus 10–20% of the performance above the benchmark (see above for how difficult it is to compare to the benchmark). Many clients believe this is the best option, but I’ve never been convinced. You’re still susceptible to the above-mentioned tricks of skimming fees here and there, and it is an added temptation for the portfolio manager to take on excessive risk with your money (more about that in a future blog post).

Third Party Fees

Yes, there's more. On top of the bank's fees, there are "third party fees," which can be anything from equity trades executed through another broker or fund commission fees. Be on the lookout for these and remember to ask about them. Private bankers have a tendency to forget to mention these to you.

So, there you have it with portfolio management fees.

Coming up next time: wrappers, not the sweet candy kind of wrappers, but the other types—offshore companies and insurance structures.

If you haven't yet, be sure to read Parts I and II as well:

Subscribe to The Banker's Umbrella - Blog by Email

0 Comments

Compliance and the Opportunities for Competitive Advantage. Guest Blogger ComPeer Limited

2/11/2014

2 Comments

To be or not to be compliant. That, it seems, is not the question. Compliance is not an optional extra and therefore, one would think, the opportunities for competitive advantage are minimal or nonexistent in an industry where firms all operate on the same compliant footing.

On reflection however, it might not be so simple. Remaining compliant isn’t as easy as ticking a box or occasionally filing a form; it is a long and arduous process which continues to evolve and change at the exact moment you think you have a positive hold of it. So how can a firm gain advantage from a process that ostensibly brings about the disadvantages of increased use of time and money? What if actually being compliant is itself a disadvantage? Ay, there’s the rub.

The City of London competes for global business

Such disadvantages would never apply to firms within the UK alone, since within a regulated region all participants need to comply. There are benefits to regulation. London competes for business against numerous other global financial centres and having robust regulatory frameworks in place improves its ability to attract business from relatively less well protected financial markets.

From a business perspective, collecting large amounts of data from customers can be extremely useful in helping shape products and services and being compliant is itself simply good business practice, keeping a firm in the game.

‘Knowledge,’ said Sir Francis Bacon, ‘is power’. The addendum perhaps, is that one has to know what to do with that knowledge. Reading blogs, attending conferences and following regulatory development proves that we all agree on the first point, but the question is how we approach the second. What do we do with the inevitable – and some might argue obvious – news that costs are rising as a result of increased financial services regulation? ComPeer’s data shows that the UK wealth management industry experienced revenue growth of 5.9% in 2011 and 3.5% in 2012 (breaching the £5bn total revenue milestone for the first time).

So, one might be forgiven for thinking that increased costs in such a vigorous market are nothing to worry about. Indeed, though 2012 costs were at record levels (for the second year running), they increased at a slower rate than revenue and pointed to the fact that many firms retain the ability to achieve healthy profit margins. Rising costs however, as we all know, can never be disregarded, nor healthy profits taken for granted. Compliance costs, whether from new initiatives or continued monitoring are going nowhere but up, at least in the medium term. The challenge for wealth managers is to pursue competitive advantage in spite of costs introduced by regulation.

‘Knowledge is Power’

One way this might be achieved is by increasing the efficacy of operations charged with monitoring and dominating those costs. Doing so is unfortunately not an exact science as – contrary to the view of the accountants – some costs may be subjective. When costs are rising it is essential that firms capture every activity that might cause expenditure to increase. If this means finding a way to measure the monetary cost of a CEO’s time spent discussing CRD IV with the board, then so be it. Opportunity costs, asset valuations and forecasting are dark subjective arts, yet they form an important part of strategic analysis. Capturing compliance costs to gain competitive advantage ought not to be any different.

Compliance can offer opportunities for wealth managers

‘Compliance and opportunities for competitive advantage’ may look like a grave typing error. Not so. Opportunities form part of even the most adverse conditions. The industry can benefit from compliance measures, though it is first necessary to accept that the compliance issue is not going away. Acknowledging this simply enables compliance to be part of strategic thinking, allowing compliance to be built into the firm’s culture. As an example (it’s an oldie but a goodie):

When The Share Centre acquired most of the customers of Wills & Co in February 2010, it may have fitted in with their strategic business plan, but they were initially contacted by the (then) FSA to consider the acquisition. By cultivating a positive compliance attitude they were able to institutionalise robust regulatory practices, resulting in the FSA recognising them as a firm that could be entrusted with such an opportunity.

Compliance can generate rewards where none were previously apparent and need not be a source of disparagement from staff outside the compliance department. If competitive advantages are realised by doing something that your competitor is unable to do, then compliance is not the primary avenue by which to seek them; but such advantages can be seized – despite competitors implementing the same initiatives – by timing it right. Incorporating compliance into your ongoing business strategy can help protect against future transformations of the compliance landscape. While the different stages of RDR implementation may have date specific deadlines, the window for implementing them is much wider. For example, firms that switch their customers to ‘clean funds’ sooner rather than later, may initially see negative impacts on income, but in the end will likely observe greater client retention as customers remain loyal to a firm that has shown a willingness to take compliance seriously.

Although the current environment ensures that compliance issues continue to be on the agenda, the industry can at least gain some comfort from the thought that it faces those struggles as a whole and consequently has a unified voice able to raise concerns as one. That is not to say that working as one means competitive advantage brought about by compliance is a fantasy. Shell Oil’s Arie de Geus was perhaps onto something when he said that ‘your ability to learn faster than your competition is your only sustainable competitive advantage’. In a rapidly evolving regulatory market, heeding such advice might be the perfect starting point.

ComPeer’s seminar The Compliance Tsunami is to be held on Tuesday morning, 4th March at The Fishmongers’ Hall, London Bridge. For more information, Wealth Management professionals should visit the event page here.

You can also follow ComPeer on Twitter, LinkedIn and Facebook for industry insight and analysis.

Subscribe to The Banker's Umbrella - Blog by Email

Amazon.co.uk Widgets

2 Comments

Buying Property in London: The 10th Circle of Hell

2/3/2014

18 Comments

I'm no expert on London housing, but the strength of the housing market in one of the world's most popular and greatest cities continues to be a matter of international interest. So I thought it proper to bring in someone who, unlike me, actually knows what they are talking about.

Today's guest blogger is Martin Stewart the director of London Money, a firm of regulated financial advisers uniquely positioned in the heart of London from where they help to guide, build and facilitate a client's financial plan.

Their strength and skill set is focused primarily on the arranging of most types of personal and commercial finance.

Guest Blogger: London Money

Do you remember those halcyon days when you walked around a property you hoped to buy grinning at your partner behind the owners back, trying hard to hide the fact that you would do ANYTHING to buy their home? Then you leave and tell the Agent you would like to think about it, wait a couple of days before suggesting a second viewing whilst also cheating on your possible new home by dating other comparable properties in the area. Then, when the tension gets too much, you decide to jump in with an offer at least 5% below the asking price. Oh the arrogance of it all!

I remember this process very well, it was only 3 years ago that I did this myself.

Cut to 2014 and what do we see? Well the quick answer to that question is complete and utter chaos. The home buying model is broken, particularly in London, and a new more sinister model has begun to emerge.

Now it is all about the “open day “. What’s that you ask ? Well it is an opportunity to herd as many people through the same property in as short a time as possible with the ulterior motive of creating instant paranoia amongst the buyers. That is then followed up by the question designed to strike fear in to the heart of every buyer, “can you let us know your best and final offer?”

So, no time to really think, no time for due diligence, no time to compare and contrast. No, not anymore. You have spent all of 15 minutes looking at something valued at £500,000 and it all boils down to a “do you wannit or not?” I have spent longer debating which sandwich to get from M&S. This new house purchase model makes the old bidding at an auction scenario almost pedestrian by comparison.

Here are some first hand anecdotal situations we have come across in the past few weeks alone:

A client buying a probate house in North London overbid the £725k asking price by £100k. He didn’t succeed, someone else bid £200k over
A client looking at a 2 bed flat in Greenwich was just one of 16 firm offers put in on the place within 48 hours of the open day
A client looking in Wimbledon found himself shuffling around a house with 30 others . It transpired 28 of them were buying chain free.

Let me be clear here. We are not referring to “Super Prime “ properties in the currency havens of Mayfair and Kensington. These are AVERAGE properties in good areas which AVERAGE people are now finding impossible to buy.

These current market conditions are just one of the many massive social changes which we will continue to witness as the fallout from the credit crunch permeates. We could go back further still to the easing of credit at the start of the Century for the original route cause.

“Oh what a tangled web etc etc etc”

One of the major casualties of the current housing crisis( and it IS a crisis) is the first time buyer. They have for all intents and purposes become redundant in the home buying process. In the space of 5 years they have gone from being the life blood of the market to being a bloody nuisance. They have, as you can probably guess, been replaced by Buy To Let investors.

As usual the powers that be continue to sleep walk us all into the abyss. We do NOT need ANY Government sponsored initiatives anywhere near London nor probably the South East. Let the ten worst performing regions in the UK have all of that money (and more).

We get asked by virtually everyone we meet “are we in another property bubble?” Our answer is “Yes, because we never left the last one“. We never naturally corrected the market. We just pumped it full of steroids and cheaper credit. Will it crash? Who knows? I sincerely hope not, unless you really want to live in a London that will resemble that of the film 28 Days Later. My feeling is we are too interlocked, we can’t escape even if we wanted to. When a country like ours is owner occupied to the tune of 70% the basic utilitarian principle of the greatest happiness for the greatest number of people prevails. My vested interest is your vested interest and vice versa.

I can see what Cameron was saying now . We really are all in it together. Right up to our necks.

18 Comments

The banker's umbrella

Talent Is For Losers

Active Vs Passive Investment Strategy?

The Compliance Profession – Where To Now?

The Compliance Profession – Where To Now?

Best Practice for Financial Services on Social Media

Europe Hates Scotland

Are Private Banking Customers Lazy?

Are Private Banking Clients Lazy...

A Tad More On Wealth Management Fees

How Private Banks Make Money. Part III

Compliance and the Opportunities for Competitive Advantage. Guest Blogger ComPeer Limited

Buying Property in London: The 10th Circle of Hell

Guest Blogger: London Money

featured in:

The Popular Stuff

Archives