Case Study – Metro Bank
When assembling for the group photo at the Transparency Symposium on Wednesday , I bumped into Professor Michael Mainelli.
Micheal Mainelli is a pretty bright bloke and he picked up on a conversation I was having with an AgeWage investor who was concerned that he’d used AgeWage’s Metro Bank business account to buy his shares. I was in the process of reassuring him that we had, when first hearing of the need to recapitalise the bank, moved AgeWage’s funds into a safe haven rather than risk being caught in a run on Metro.
I was admitting that I felt pretty shitty about moving my money away as I could be seen as part of a run – (and Metro are very good to deal with). Michael explained that the reason that I had to know that Metro had problems was part of a fundamental flaw with fractional banking and this was a case of me worrying unduly.
That is an academic’s answer (I thought), if I had kept my money with Metro, I could have made a statement about solvency , but it would have been to the risk of my business and shareholder’s funds. Having thought that, I scurried onto Google to find why Michael and his long-finance think tank are opposed to fractional banking.
I can see his argument and – for want of a better – can now see the Metro Banking problem in a more complete light. However, I am not convinced by the extension of Michael’s argument – that I should not have been told of the threat to Metro Bank.
It now looks as if Metro Bank has got the £350m it needs to refinance (and a lot more) and I hope that our cash will be back with Metro before too long. The inconvenience caused to me by a round trip to a safer harbour was minor relative to the consequences of losing our start-up’s funds and Michael and I will have to agree to differ in our positions!
I guess that if someone in the PRA reads this case study, they will have to question whether it was in Metro’s interest that the refinancing was conducted in public. Personally I am glad that I knew – had the bank got into trouble and the PRA kept the lid on things, I – as a shareholder – would have been coming after the PRA. But on Michael’s more fundamental point about fractional banking, I am now a little more wary of our banking system. I guess that I am a better customer for the experience (and for Michael).
Issues with full disclosure
One of the debates at the DC Strategic summit I am promoting on June 12th is a debate started by Dr Julius Pursail about value for money disclosures. Julian’s view is that people need an historic view of the value they’ve got for the money they’ve invested before they can go on work out what to do with it. This of course is a view I and AgeWage share.
It appears that the conference organisers are having trouble outing a pension provider which is taking the opposite view. But I can put them right on that, there are very many providers who have expressed (in private) to me , that while they think an outcomes based rating system is fine in theory, in practice it could incite people to take precipitous actions that would be detrimental to them and the pension provider (eg pull their money as I pulled mine from Metro Bank).
I will come back to mitigation to that risk in a moment, but for now – I’d put this position in the same basket as that of Michael on Metro Bank. In an ideal world we would not have bank failures nor need fractional reserving; in an ideal world – no pension fund would be run other than with the best endeavours of trustees, fund managers and advisers. In an ideal world money would stay where it was and we should not need transparency.
But we do not have an ideal world and the providers are taking an abstract position which is not aligned to their customer’s wishes. Every survey that is published tells us that people judge pensions by outcomes – by how their money did. So if we don’t publish outcome based metrics (such as the AgeWage score) we aren’t telling people what they want to know – we aren’t showing them the value of their money.
Of course I am aware that if someone saw a low AgeWage score and concluded from that that they should take their money away from the provider that might prove disastrous (triggering unnecessary penalties, losing forthcoming bonuses or important product features such as life cover, waiver of premium or guaranteed annuity rates. But is that an argument for non-dislosure? I think that it is an argument for responsible disclosure but that does not mean partial or non-disclosure.
Pension Providers (whether their customers have contracts or not) are charged with telling people if they are getting value for money. They don’t need to do this directly, they can fund their IGCs and/or trustees to do this for them, but disclose they must.
So far these disclosures have been abstract and weak, they have not addressed people’s personal experience but have focussed on the generality – so an IGC Chair will write that
“in my opinion, XYZ has generally delivered value for money”.
This may tick a box but it hasn’t engaged anyone, savers are entitled to ask “but what about me?”
The system of scoring advocated by AgeWage tells people how they’ve done as an individual and hopefully it should reinforce the message of the trustee or IGC (they’ve got VFM). But people may not be satisfied with the quantum of value or the amount of money taken and may want to move their money to another pot where better value for money has occurred.
This is where it gets risky and this is why AgeWage needs to raise much more money than the £500,000 we have already had invested. We need to provide a support mechanism for those who have engaged with the score and are looking for more.
This support mechanism cannot be built today, it must wait for further money as it will not be self-financing for some time and it will necessarily be manually intensive in the first year of operation. AgeWage will not make money in 2019 or in 2020 and investors should look for a return from 2021 onwards.
And even to get to the point where we raise money for this support service, we need a minimum viable product and the proof of concept that tells people that our scores are accurate and prompt people to action.
This is why I was asking for data yesterday and why I will be using that data over the next three months so that we can launch our minimum viable product in the early autumn.
Making the most of an imperfect world
In a perfect world , we would not need the PRA and Metro would be fully reserved.
In a perfect world we would not need AgeWage as people would get their pensions paid without need for them to bother themselves any.
But we don’t live in a perfect world and we do need to take care.
So I’m of the mind that we do need full disclosure – but responsible disclosure- of the kind I envisage for AgeWage
I’d like to thank Metro Bank for the co-operation they’ve shown to AgeWage in the past month.