No Monkey Business: a no nonsense clearing in the personal finance jungle

Looking for No Monkey Business Limited?

You have been directed here but you may be looking for our business website. No Monkey Business Limited is an FSA-authorised financial planning and wealth management firm for wealthy individuals and their families, putting into practice the ideas in my book. The business site aims to communicate clearly the benefits for clients of our simple proposition: the highest standards of technical excellence (as enjoyed by institutional investors) delivered with no separate agenda, no hype and no hidden costs. We would love to be able to deliver this to retail investors at all levels of wealth but that is something for the future.
admin on 03.09.08 @ 10:56 AM GMT [link]

Tuesday, June 30th

RDR: mixed blessings for consumers

After three years, the FSA’s latest consultation paper on the Retail Distribution Review (RDR), published 25th June, is close to the final word, incorporating the draft Handbook test that rarely alters much in subsequent consultation. It is time therefore to judge whether these changes in the way the advice industry works will lead to significantly better outcomes for customers.

Superficially much will change for the better in the industry but it will probably not have a dramatic impact on key targets of the RDR: increasing access to advice, improving the value of advice and lowering its costs. The FSA concedes that the industry is not yet confident about the business models that would increase access to financial advice at the bottom end. We fear the RDR will actually damage consumer-friendly innovation at the top end, including our own business which is pretty ironic (putting it politely). It is only in the relatively well-served middle market that the long-drawn out RDR process stands to produce clear benefits. But even these will only be significant if customers make an effort themselves to face up to and engage with personal finance.
Stuart Fowler on 06.30.09 @ 05:01 PM GMT [">more..]

Wednesday, May 27th

The Ombudsman highlights problems identifying and matching clients' risk tolerance

Consumer complaints about investments have nearly doubled in the past year, according to the Financial Ombudsman Service’s annual review. Overall investment and pension complaints (now including mortgage endowment cases) jumped to 22,265 from 12,787 in 2007/08. Commenting on the report, Citywire’s ‘New Model Adviser’ forum singled out that ‘while the ombudsman recognised under performance of investments was a factor in some of these complaints, it said poor stock market conditions had exposed poor advice. In particular it identified a trend in complaints where financial advisers had not sufficiently considered clients’ tolerance to risk.’

Having taken a complaint against one of the banks to the FOS, I can see that there is a significant risk of a lottery effect in the adjudication of blame in this area, simply because the typical process of discovering risk attitudes is so unscientific, unquantified, jargon-filled and partial. In my book I referred to it as ‘woolly flannel’. Six years later, nothing has changed. This applies equally, by the way, to banks, IFAs and private-client portfolio managers. You can read a slightly expanded version of the comment I posted on the Citywire site, for the benefit of our peers, suggesting more quantification would bring clarity to both parties and help avoid disputes.
Stuart Fowler on 05.27.09 @ 06:48 PM GMT [">more..]

Monday, May 4th

Equity risk: the inescapable impact of business conditions

This article on the business website writes up a recent talk Stuart gave to a group of early-stage private-equity investors. In it he argues for a broader and more intuitive approach to thinking about equity risk, based on the frequency in history of major and long-lasting shifts in real economic performance. He explains how a narrow statistical focus on the dispersion of short-period nominal equity returns, and correlations between asset classes, has led to misplaced reliance on asset-class diversification as a tool for managing risk. This broke down after 2007 in the face of just such a sea change in global economic conditions, revealing the extent to which the main asset classes used in private client portfolios are essentially derivatives of business equity capital.

His conclusion is that the only way to control real wealth outcomes at long time horizons is to manage the total exposure to business risk, by combining risky assets with a goal-specific risk free asset. For most personal goals, which call for the maintenance of the purchasing power of capital, this risk free asset has to be index linked gilts. A benefit of this approach is that it makes the cost of avoiding equity risk transparent. Knowing the cost, most investors will bear more risk than they want. Such is life in a market economy.
admin on 05.04.09 @ 12:14 PM GMT [">link]

Our analysis of the politics and economics of the 2009 Spring Budget

You can read on our business website the analysis sent to No Monkey Business clients after last month’s Budget. The analysis focuses on those budget measures most relevant to our clients or most important for financial markets generally:

- The Treasury’s unrealistic economic forecasts, their projections for public borrowing and the implications for the chance of a funding and/or sterling crisis
- We join the debate on the shape of the recession: the Government has to hope for a V-shaped recovery but adjusting to excessive household and corporate debt looks more like a bath than a V or even a U
- The economic argument for a 50% top rate of tax is dodgy but what about the politics: is reviving class war politics really a clever strategy in a challenging economy?
- We look at the economics and maths of the ‘pension contract’ between different generations of taxpayers to see whether it has survived the changes in the last two tax-raising budgets.
admin on 05.04.09 @ 12:08 PM GMT [">link]

Sunday, May 3rd

Trading low risk for higher income: banks in the forefront of 'the next mis-selling scandal'

In today’s Sunday Times, Money editor Kathryn Cooper devotes her ‘Cooper on Cash’ column to the high street banks’ sales strategy of moving low-risk investors, including the elderly, out of low-yielding savings products into higher-yielding investment products that expose them to risk of loss of capital. Several of my recent items refer to this. She wants the FSA to ask itself whether it is enough to look at documentary evidence of the sales process ‘rather than casting its eye over the banks’ entire business strategies: is it right that pensioners should be moved en masse into corporate bonds and equities in their search for income?’.

My experience, analysing one of the banks’ sales process documentation in response to a complaint now with the Ombudsman, is that the process is fundamentally flawed in a number of key respects, including reliance on the customer’s self diagnosis of ‘need’ (as any IFA will tell you, this is often wrong or incomplete); inaccurate internal risk scoring and suitability mapping; and partiality in failing to describe the alternative solutions with equal weight. This is the ‘box-ticking’ approach Kathryn refers to. I think of it as a carefully-crafted ‘biased decision tree’. I will return to this in detail, analysing the bank’s particular process, when I know the outcome of the FOS complaint.
Stuart Fowler on 05.03.09 @ 04:54 PM GMT [">link]

Friday, April 17th

Debt recovery: another case of banks' incentive structures causing breaches of banking practice?

The Sunday Times story, Lloyds bank staff ‘puts frighteners’ on debtors, sourced from undercover reporting, looks like further evidence of banks creating perverse incentives that have the entirely predictable effect of causing staff to treat customers badly, breaching either banking practice (as here) or (in savings and investment products) FSA regulations. To laymen, these breaches are much more serious, against common decency. Do these bank boards have no idea what their managers are doing that has such systematically predictable outcomes? Or do they know but just don't care?
Stuart Fowler on 04.17.09 @ 04:52 PM GMT [">link]

Tuesday, April 14th

The future of capitalism: much like its past

The self-destruction of a large part of the equity capital of many of the world’s leading banks, requiring taxpayers to step in and refinance them, is enough to make people think that the capitalist system itself cannot continue unchanged. Many of the broad sheets, plenty of bloggers and all the usual anti-globalisation suspects have therefore been asking momentous questions about the future of capitalism.

This is a bit silly, not because the adjustments to the crisis will not be extraordinary but because the different national versions of the market economy are by nature adaptive systems, like religions, reforming in the light of changing social and political demands.

To the extent the public reactions to the crisis are already relatively well-formed, the changes likely to be imposed on the workings of the market economy are probably easily predictable and are mainly technical, to do with financial regulation and the future conduct of monetary policy. The adjustment process will push up government spending everywhere but more so in leftward-leaning governments like America. But even that may not permanently raise the proportion of government spending and transfer payments in already mixed economies. The major unknown is the extent to which governments resort to both protectionism and competitive devaluations. But even these are not terminal for capitalism and will contain the seeds of their own eventual rejection and reversal.
Stuart Fowler on 04.14.09 @ 10:51 AM GMT [">more..]

Tuesday, March 31st

Capital cheap or dear?

Confronting an unavoidably long period of deleveraging of economies, it is difficult to avoid the logical conclusion that capital should become expensive. Recessionary forces may hint at underuse of available savings and falling prices may create an illusion of cheap capital, particularly as credit spreads narrow. But I would warn against forgetting the essential message of the new era. Capital is going to be rationed, hard to access and, in real terms, very expensive.

Modern owners of financial assets may well think of themselves as the democratised affluent, which is all they mostly are, but might do better to behave as if they were in an 18th or 19th century minority of capital providers, who seemed generally better able to sense the value of what they had and others wanted.
Stuart Fowler on 03.31.09 @ 06:36 PM GMT [">link]

Debt insights still needed on the street

Last week’s Panorama programme maintains a good tradition over the last 8 years or so of Panorama reporting on Britain’s problems with an over-efficient debt sales machine. But the programme pointed up only frustration with the industry and no insights by the people affected that they have often been their own worst enemy. This has to end if we are to enjoy sustainable financial wellbeing in our households. These are the symptoms of a society that wants it now but also of a society in which the simple maths of debt have gone missing. Without the maths there is no realisation that bringing forward gratification massively reduces the lifetime sum of satisfaction available from consumption, as debt service permanently reduces possible spending. I deliberately make no distinction here between home ownership and consumption goods as I believe both end up having the same effects where affordability is the issue.

In the days when regulated lenders were forced to run liquid and well-capitalised balance sheets, ignorant customers were in some sense protected, as affordability then mattered much more to lenders. But this nanny state is not the same as leading your life knowingly and making choices deliberately in ways that are likely to maximise rather than destroy what you believe to be your own financial welfare. Panorama was great at dumbing down the subject and staying close to the border of hype. It would be good to see it apply these same skills to debt education, as damage prevention.

Stuart Fowler on 03.31.09 @ 06:33 PM GMT [">link]

nomonkeybusiness.org

a no-nonsense clearing in
the personal finance jungle

By whom

For whom

Business connections

Looking for No Monkey Business Limited?

RDR: mixed blessings for consumers

The Ombudsman highlights problems identifying and matching clients' risk tolerance

Equity risk: the inescapable impact of business conditions

Our analysis of the politics and economics of the 2009 Spring Budget

Trading low risk for higher income: banks in the forefront of 'the next mis-selling scandal'

Debt recovery: another case of banks' incentive structures causing breaches of banking practice?

The future of capitalism: much like its past

Capital cheap or dear?

Debt insights still needed on the street

Topical Index:

External Links:

<>June 2009
S	M	T	W	T	F	S
	1	2	3	4	5	6
7	8	9	10	11	12	13
14	15	16	17	18	19	20
21	22	23	24	25	26	27
28	29	30

nomonkeybusiness.org

a no-nonsense clearing in the personal finance jungle

By whom

For whom

Business connections

Looking for No Monkey Business Limited?

RDR: mixed blessings for consumers

The Ombudsman highlights problems identifying and matching clients' risk tolerance

Equity risk: the inescapable impact of business conditions

Our analysis of the politics and economics of the 2009 Spring Budget

Trading low risk for higher income: banks in the forefront of 'the next mis-selling scandal'

Debt recovery: another case of banks' incentive structures causing breaches of banking practice?

The future of capitalism: much like its past

Capital cheap or dear?

Debt insights still needed on the street

Topical Index:

External Links:

a no-nonsense clearing in
the personal finance jungle