Out and About Archive – Archive

I’ve been on the glide-path for the last five years or so and landed on June 3^rd. My 75^thbirthday. So, I’m now no longer involved with financial services – apart from my own!

The last 55 years have been very enjoyable and very rewarding. I have met more wonderful people than I can count in the UK and the USA – in particular, at Bevington Lowndes, Julian Gibbs, Albany Life, MetLife, KPMG and EY. I’d love to record all their names, but it would take too many pages. However, one name must be recorded: Jenny Yamamoto. We met at Julian Gibbs in 1979 and have been together ever since.

Since stepping back from financial services, I have written three books which have been published. The first was “Dirty Money, Terrible People”. It’s fiction; not an exposé! But some of the characters and places are based on reality. I’m now working on the fourth.

By the way, I use my friends and family name Calum when publishing my books.    https://bryherhousepublishing.com

In the UK we seem to move from one crisis to another. As I write this we have a salad crisis with supermarket shelves empty of cucumbers, tomatoes, and peppers. Interestingly the independent stall on Chiswick High Road pavement has shelves full of those items. I gather that the big players are having supply problems as they are engaged in a fierce price war and farmers are struggling to get paid enough to make a living. Anyway, I wouldn’t be surprised that by the time I finish this article the supermarket shelves will be full again.

This time last year there was a housing crisis. Prices had “Gone through the roof’ and no one could afford to buy. We now have another housing crisis because prices are falling sharply driven by “high” mortgage rates – high by 21^st century rates but low in contrast to 1980’s when rates reached 18%. Interestingly, only 28% of properties are owned with a mortgage, most of which are on fixed rates with a minority close to expiry.

The current “cost of living crisis” is of course a real and present problem for a significant segment of the population. Research suggests that between 20% and 25% are “concerned” but 75% to 80% are not. Data from retail banks throw some light on this. For example: Lloyds 26 million customers have £312 billion on deposit or in wealth accounts. Up £3 billion from a year ago and HSBC’s UK deposits are up from £178 billion to £181 billion. (Incredibly, in the UK there is £1.8 trillion in people’s current accounts!)

Another interesting piece of data is around public finances: Income tax revenues surged 11% and National Insurance by 12% from April 2022 to January 2023. So it seems to me that that many people must be in a better financial situation today than they were before the pandemic.

Recently there were rumours that NatWest Bank was studying a bid for the wealth management firm Quilter. My immediate reaction was: “What could possibly go wrong?”  Why? Because both parties have made some serious mistakes quite recently.  And because most substantial consolidations have failed to generate benefits to shareholders, staff or customers. Standard Life and Aberdeen looks like a good example.

The Quilter mistake was failing to carry out effective due diligence when they acquired Lighthouse Group in 2019. They paid about £46M for the business but since then they have had to make provisions adding up to a similar number in respect of inherited pension transfer business. So, it cost them twice as much as they expected, and I wouldn’t be surprised if additional provisions emerged in the future.

The NatWest mistake was mind blowing. I write crime fiction (under the name Calum Kerr) and if I came up with a plot based on the NatWest story it would be considered too far fetched. If you want to know all the facts, there is a thirty-three page FCA document available but here is the main point: A company called Fowler Oldfield was a buyer and seller of gold. It was a small company owned by a husband and wife. Future sales were predicted to be £15m per annum. This was increased to £30m later on. Cash transactions were £18m.

From late 2013 numerous NatWest branches received cash sums of between £12m and £44m and, I quote, from the FCA document; “ situations which included the deposit of such large sums of cash that they were brought in, in black bin bags which tore because of their weight and sums so large that the bank’s safes were inadequate to store them.”

 NatWest were fined £397,156,944,14. But because they pleaded guilty this was reduced to £264,772,619,95. (Don’t you love the FCA feeling the need to include the last decimal points!)

What could possibly go wrong, went wrong. I wish I was surprised!

Some things have a slow burn and my money is on Nutmeg

By Nic Cicutti 1st August 2022 8:00 am

Whisper it loudly: I’ve been a huge admirer of Malcolm Kerr for many years. He has packed so much into his 50 years in financial services – at Albany Life, Canada Life, KPMG and EY – that no one in the industry comes remotely close to his level of insight into market trends. But I did find myself wondering about the rationale for his recent critique in the pages of Money Marketing on Nutmeg, the online investment management service owned by JP Morgan Chase.

The starting point for Malcolm’s critique was an advert for Nutmeg in the pages of The Spectator, which he correctly pointed out was a Tory magazine with a circulation of 100,000 or so and a readership with an average age of 50 (it’s 58, actually, but who’s counting). He argued, not unreasonably, that Nutmeg targeting this market with a financial proposition that is supposedly aimed at thirty somethings didn’t make sense. I’m generally with him on this – although I’d caveat this with the reflection that advertising is an incredibly complex art and an ad in The Speccy might still reach a significant number of young(er) Tory affluents whose money it wants to vacuum up. It also depends on the price being charged for the ad itself.

It took 7IM until June 2013 before it reached its first £5bn AUM. That’s more than 12 years from launch. The next £5bn took barely two years. In contrast Malcolm correctly said that Nutmeg has barely managed to attract £2bn, leading him to question the £700m for this company paid by Chase. He’s right: that’s an astronomical price for a robo-adviser with barely £4bn in funds under management. Wealthify, which was taken over by Aviva in 2018, cost a mere £17m by comparison. Moneyfarm, largely owned by Allianz and M&G and with £2.2bn under management, cost a fraction of the amount paid by JP Morgan Chase.

Where Malcolm leaves me behind is in his more generalised critique of Nutmeg and other online robo advisers. His argument is that robo advisers have taken forever to build volume in the UK, despite repeatedly being talked about as the next best thing for a decade or longer. Meanwhile, they leak money like a sieve: in the case of Nutmeg he points to its latest annual results, in which the company revealed annual losses in excess of £20m, up £5m on the previous year. Again, true. But I’m also reminded of 7IM, a company with a proposition deliberately designed to attract inflows of funds from lazy financial advisers by simplifying their fund management decisions. So not the toughest of sells. Hardly surprising, then, that the company, owned by Caledonia Investments since 2015, now has almost £20bn under management. Talk is of a £400m sale later this year. Yet, despite stellar marketing by one of the industry’s top gurus, Justin Urquhart Stewart, it took 7IM until June 2013 before it reached its first £5bn AUM. That’s more than 12 years from launch. The next £5bn took barely two years, in contrast.

Some things have a slow burn and my money is on Nutmeg and some of the other robo advice firms – and yes, I know how much they hate the ‘robo’ tag– making good in the next five years.

Finally, I accept Malcolm’s argument that, while straightforward fund management is relatively straightforward, the more complex areas he describes such as the lifetime allowance and fixed protection won’t be covered by most robo advisers. We may see advisers being used in a different way by robo customers. Instead of a long-term association with a ‘live’ adviser, robo consumers may expect a direct transactional relationship: I pay you purely to advise me on how to make a specific thing happen, or actually do it for me.

It’s not ideal for advisers, of course. But over the past 30 years many have cared little for their clients. It would be a supreme irony if it turns out th other way around in the next 30 years.

Nic Cicutti can be contacted at nic@inspiredmoney.co.uk