Working with Europe

Here is a summary of key points from Mark Hoban's recent presentation to PricewaterhouseCoopers:

1. London is both the most global and the most diverse financial capital around the world.
2. We will better create a more stable and competitive financial centre by working with the EU than by turning our back on it and letting other Member States get on with it.
3. The EU has signalled that it's open for business and will not close its border or restrict the free movement of capital.
4. We have demonstrated that we can work with and influence EU policy, by reversing the Council's position on the alternative fund managers directive.
5. We should be working to ensure that new regulation promotes transparency, is non-discriminatory and support's competition.
6. To achieve this, the government will need the engagement of and support from within the industry.
7. The establishment of the City of London Corporation's International Regulatory Strategy Group, as well as the emminent launch of the UCITS IV consultation, are steps towards this.
8. Engagement must be backed by solid evidence, and clear rationale.

It's hard to fault the argument that the UK needs to be part of a larger economic economic and policy bloc if it is to compete with global behemoths like the USA, China, etc.   Balancing all the special interest groups to achieve this in practice, however, is likely to prove much more difficult.

"Flow" by Mihaly Csikszentmihalyi

I've just finished reading "Flow" by Mihaly Csikszentmihalyi, which deals with the subject of how to achieve happiness and enjoyment from work.

The fundamental thesis is that people most enjoy activities in which the goals are clear, the are opportunities for action towards those goals and feedback is immediate.   Mihaly delves at length into the concept of an "autotelic personality" - that is, a person who is able to:
1.   set their own goals, balancing both long term high level goals with shorter term more immediate goals, and
2.   create opportunities for action (rather than feeling like a passive observer or even a victim).

Mihaly also goes into great depth about the difference between people who rely on external goals, such as greater wealth, more fame, etc., and those who are more focused on more intrinsic goals such as developing their personal skills and cognitive abilities.   Unsurprisingly, he suggests that latter are more resilient to environmental difficulties, and therefore more likely to sustain a sense of well-being regardless of what is happening around them.

When all of these conditions are present, it is said that you will be in a state of "flow".   Your concentration will become focused, and your daily stresses will recede from consciousness.   This, suggests Mihaly, is the key to sustained happiness,

It's a fascinating and well researched book, with numerous anecdotes to demonstrate the theory.   I can highly recommend it to almost everyone.

The new Twighlight zone

My 14 year old neighbour was telling me on the weekend how much she dislikes garlic.

"How will you keep the vampires away, then?" I asked, a propos of nothing in particular.

"Why would you want to do that?   Vampires are cool!" she responded incredulously.   "I've watched the whole of the second series of Twilight." she added by way of explanation.

Now, when I was her age (which was not that long ago) vampires films definitely belonged on the shelf marked 'horror' in the local video store (OK, it was quite long ago).   And the cold war had us all preoccupied with the threat of global thermonuclear warfare.

So now, vampires are cool, and it seems we're more worried about the threats of asymetric warfare and cyber-attacks.   How the world has changed.

The relevance is, of course, that my neighbour is, or at the very least will shortly be, part of our target markets.   But her consciousness is seeded with very different, almost opposite, notions to my own.   How do we incorporate such different fundamental world-views into our product and marketing strategies?

I am sure that there are lots of other ideas which have been turned on their heads with the next generation.   If you have any in mind, I'd love to hear about them in the comments below.

Is transparency enough?

Last night's Panorama investigation into pension fund charges, and this article in the Telegraph, have once again shone the spotlight on fund charges.   The conventional wisdom seems to be to push for greater transparency in fees.   I'm all for that - but I am not sure it will be enough.

Knowing what fees you're being charged is one thing.   But I don't believe that the average investor is able to fully understand the impact those fees have on their pensions and investments.   It takes a fair amount of sophisticated maths to calculate the fee drag on £100 a month invested with a 1.25% management charge, not too mention any other charges such as dealing and custody charges that may be thrown in on top.

I believe a better solution would be to force all funds to report performance after all costs have been taken into account.   The equivalent of an APR calculation for fund performance, if you like.   That way, investors would be better able to assess whether their pension fund had performed better than their cash in the bank over the last year.

(Where a fund changes its charging structure, the rules could be such that the fund would also have to restate its historic performance as if the new structure had been put in place.)

Of course, that provides a backward looking view only.   So we'd still need all the transparency in order to formulate a forward looking view.   However, I believe it would put the average retail investor in a much better position to assess whether they felt they were getting value for money.

What do you think?

Appvertising

I'm hoping to coin a new term: appvertising.

At least, I think it's a new term.   I've certainly never seen or heard it before.

Appvertising is the use of applications or applets for advertising.

The first example of this that I have seen was CompareTheMarket.com's (or is that CompareTheMeerkat.com's) iSimples iPhone app.   If you're a fan of the Meerkat, and you've not yet tried it, you really should.

And I've just read that last.fm and MXP4 have just teamed up to to provide advertisers with the technology to offer listeners an interactive music experience.   That must surely beat passively listening to yet another advertising jingle!

Apple, it seems, are encouraging this trend through the launch of their iAd mobile advertising platform in April of this year.

It's my bet that appvertising is here to stay - and I hope that the word will also.   You could help by sharing and/or linking to this story!

Government's view of the economy

I chanced upon the following quote today, and could not resist the urge to publish it:

"Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidise it."

Ronald Reagan

Longevity in strategic planning

Longevity has been in the news again this week - in contradictory stories.

The BBC reports that the European Commission has warned EU member states to overhaul their pensions systems to adjust for low birth rates and ageing populations as life expectancy increases. They note that there are currently four working people for each person over 65, but warn that this will increase to only two working people for each person over 65 by 2060. The also note that less than 50% of adult Europeans are still in employment by the age of 60%. (They also highlight discriminatory and tax rules and barriers to cross-border activity relating to pensions, but that is another topic altogether.)

On the same day, the FT reported that RMS, a leading risk modeller for the insurance industry, has predicted that the recent rate of increase in life expectancy will not be sustained. As a result of this, they argue that insurers and pension funds may already be overstating the risk of longevity increases on liabilities. RMS base their assertion on the extent to which known causes of death, such as heart disease, have already been controlled (resulting in diminishing marginal returns from further work in those areas) combined with a review of thousands of medical trends and drug trials suggesting what new areas of improvements might or might not be opened up.

It's is the job of actuaries to balance these seemingly contradictory views in assessing future insurance and pension liabilities.

In strategic planning, however, we are able to consider both by constructing different scenarios for different potential outcomes, and then testing strategies against all scenarios. In this way, strategists can conduct rational analyse to formulate strategies which are robust regardless of whether its the European Commission or RMS who turn out to be right.