Crowds run clubs in the long run
We have got so used to the concentration of power and money in football and rugby clubs that we can forget that England rugby or Chelsea or Man City are the product of their fan-base. The management holds the keys to the changing rooms but they are their under sufferance. Even where, as with Newcastle, the management of the club is controlled by someone who holds out for years against his own supporters, we know that in the end it is the 50,000 Geordies who turn up at St James Park each week, who are the long-term owners of the club.
VW – the people’s car- has “let itself down, let its share-holders down and let Germany down” – so reads the end of term report for the current management. Those who manage, do so under sufferance, there can be no short-cuts to success when success is determined by the customers/spectators – the crowd.
You can’t obstruct the river for ever.
I’ve been thinking this when sitting on the panel at a couple of meetings of FT’s Retirement Freedoms Forum. My co-panellees, and the hundreds of good IFAs in the room, are holding the keys but outside the fancy hotels where our meetings have been going on, the crowd flows down Piccadilly and Princes Street taking decisions as crowds do – by seeking out the easiest way.
We might be able to influence decisions, just as we can influence the currents in a river, through creating temporary obstructions, but the river is bigger than anything we can throw in its way, even the mightiest damns are eventually broken, water will find its natural course to the ocean.
Few people properly understand the mood of the crowd.
Those who understand the natural course of decision making best are those, like Paul Lewis who watch and commentate. Paul has well over 80,000 people who follow his tweets , millions have listened in to Money Box. Because he understands what people want.
Paul spoke at the event yesterday, though I disagreed with him on some things (his obsession with cash as an “investment” and his dismissal of the threat of inflation), I agreed with his simple observation that people need a simple and secure way income as they grow older, and they need protection from living longer than their savings.
The financial services industry is trying to re-shape the natural course of the river , sluicing and damning and building artificial watercourses that they hope will irrigate their particular estates. Every asset manager has its unique formulation to provide “all-weather” funds (most of which appear to have lost money in the last three months). The providers of SIPP platforms offer tools to help the crowd follow the flows of their savings and promise that they will stay in the correct channel. Most extravagantly of all, consortia of banks and asset managers and insurance companies build synthetic alternatives to annuities as if the derivative markets can succeed where mortality pools failed.
Only Government can unblock the watercourses!
The river, like the football crowd, keeps on and will ultimately determine its own natural course.
How long this will take, may be influenced by Government. Tax legislation prolonged the hegemony of individual annuitisation well beyond its “best before” date but when the damn was broken, pent up demand quickly changed things. Over 200,000 people have exercised their rights to pension freedom since April.
There remain market distortions preventing the proper flow of money. The legislation to allow new mutual structures to spring up to help people spend their money collectively is still only half built and getting scant funding. However the legislation in place is sound and can be returned to when demand dictates.
In my view, the FCA’s attempt to solve the problem through creating more relevant advice for the crowd is proper. Advice and Guidance should be easier and cheaper to access but this will only happen if people feel confident that it will allow them to do what they want with their savings. The current options “pay lots of tax”, “pay lots of advisory fees” and “pay hidden costs to insurers” (how most people see in retirement choices) does not have them queuing up at Pension Wise’s door.
New advice and guidance mechanisms must lead to better ways to spend retirement savings (decumulation if you must).
We need to get back to what people want, not what we want from them.
Not since 1987, when the golden era of workplace collective pension schemes came to an end, have we had the chance to build the apparatus to have their pension savings back to people’s satisfaction. We have that chance now, or will do if the DWP can finish the job they have started and provide us with the legislation to run CDC.
The mutual structures that were created in the 19th century and flourished for most of the 20th century, are the foundation for the financial services industry we know today. They represent the natural course of the river, the direction the crowd would obviously take.
These structures have been obstructed, sluiced, damned and irrigated by intermediaries so we can hardly see them today. But they still exist, and if we can get rid of the pestilential blockages that still remain, we may yet people back to the true channels of the river.
The crowd’s voice will be heard again.
The underlying power of a Newcastle United, or the game of Rugby in England is not held by Mike Ashton or the blazers of Twickenham but by the sea of black and white to be seen on match day and the army of kids and mums and dads and coaches and referees that turn out on Sunday morning for mini-rugby.
The long-term future of pensions and what will restore confidence in them, lies with a return to the pension structures we built in the middle part of the twentieth century which Frank Field called in 1998 – Britain’s economic miracle. These structures have not gone away, they are a little under-water, but they will be back – because the crowd wants them