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Disneyland trip is over and it&#39s time to face reality

I thought I would express some views (because they

are based on logic and experience) just before zipping off on holiday.

People used to go to on holiday to Disneyland to escape from reality. For

IFAs, Disneyland is the everyday politics and bureaucracy of our industry.

I am sure Ron Sandler is a nice man and did a good job at Lloyd&#39s.

However, if the Government had come to me (at far less expense) to say:

“What would a chap like Ron Sandler write in a report on your industry?” I

would have said, well, he will have a go at with-profits, not because they

have led to customer dissatisfaction but because they are opaque or

counter-productive or some other nebulous phrase.

He will drag out the well flogged horse about commission, not because the

public cares much about it (they know people in work get paid and they do

not like fees) but because it feeds the prejudices that have bedevilled

regulation and journalism (would Lorna Bourke have been able to eat for the

last 10 years without this subject?).

He will add some unprove-able speculation such as “the customer does not

understand that commission is often front-loaded.” Believe me, anyone who

cares about facts knows that the one thing every customer thinks they know

is front-end loading.

Without much effort, I can think of a long line of highly paid people who

have spec-ulated about our industry – Sir Gordon Borrie, David Walker,

Andrew Large, Colette Bowe, Myners and Sandler in addition to pension

spokespeople and ministers who drift in and out with a few catchphrases

they never understood.

To my mind, what has been almost universally absent is intellectual

rigour. For instance, the condemnation by the FSA (amply refuted by

Skandia) and now Sandler about the value of past performance shows

remarkable detachment from the requirements of pure logic (yes, I mean as

practised by rigorous logicians of the Hume, Kant, Bertrand Russell


Britain has produced some of the greatest logicians but their effect on

the above named report-writers is barely discernible. Past performance is

fact. That it cannot foretell the future is hardly surprising since as I

was told by my mother at the Perth Highland Games when I was four: “No one

can foretell the future.”

However, if you see consistent good performance and that it is matched

with good financial strength and managers with a convincing stance and a

good CV, these are strong guides.

The intelligent IFA will also be making considerable efforts to establish

whether an investment house has a genuine commitment to good performance.

Projections at any rate of growth, reduction-in-yield figures on products

whose charges will almost certainly change several times are from the world

of Mickey Mouse and Donald Duck, a happy land where the cartoonist dictates


The fact that with-profits are not transparent is irrelevant if, as we

experience, clients with with-profits bonds are almost invariably happy.

Does Sandler or Myners believe that the public or most regulators or

journalists could give a clear guide to the workings of the splitcapital

investment trust?

How many understand how bid/offer spreads are established in unit trusts

and why a unit trust is inevitably more costly than an Oeic?

I do not have the faintest idea what happens under the bonnet of my car. I

do not want a car that is so simple that I can understand it (probably an

unattainable aim anyway).

I want one that gives me no problems, that takes me where I want to go and

I am happy for the salesperson to be paid as long as I get value for money.

The investor who beats inflation handsomely most years and has peace of

mind does not lie awake worrying that his with-profits bond is opaque or

that his adviser made some money or that he could not detail the workings

of his zero-dividend preference shares.

In my real world (that is, when not in Disneyworld) no one would be

permitted to write influential reports or legislate without a thorough

grounding in formal logic.

They would be ashamed to make observations they could not justify either

by incontrovertible fact or flawless reasoning. Clearly, I need a holiday.

Robert Graham

The Scottish Financial Independent Group,



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