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Chris Gilchrist: Advisers strangled by regulation as investment landscape shifts

Chris Gilchrist 700

Some years ago I was an early member of the Finance Innovation Lab, an initiative sponsored by the Institute of Chartered Accountants and the World Wildlife Fund. Its aim is to foster changes leading to a financial system “that serves people and planet and allows life to thrive”. Go on – dismiss it as irrelevant to the real world. That would be a mistake.

Positive Money, the group campaigning very effectively for radical reform of banking, was incubated within the Finance Innovation Lab. Several of its proposals, in particular the creation of money by the state, not the banks, and separation of casino from retail banking – beyond the pale back in 2007 – are now on their way to becoming orthodox thinking. They are endorsed by the likes of Lord Adair Turner in his book Between Debt and the Devil, and the FT’s chief economic commentator Martin Wolf. The Lab links a lot of other initiatives involving organisations dedicated to change.

It is obvious there is no going back to normal in economics. There are plenty of ideas about what will replace the broken neo-classical-liberal model. The free-market, monetarist, laissez-faire model has not worked and does not work, and one reason US politician Bernie Sanders is getting such a big vote in the primaries is that the intelligent kids understand that. They are up for radical change, as are Jeremy Corbyn’s and the Green Party’s supporters: both grassroots and democratic in a way that does not fit the Westminster model, which is another signal of change.

Naturally, the interests of the “haves” are against change. But the haves who benefit from the current system are very few – about 10,000 super-rich UK taxpayers and the classic 1 per cent that own half of America. An economic system only gets political support in the developed world if it benefits the middle classes. If it does not it will be discarded or changed. Roosevelt’s New Deal was a socialist upheaval against corporate kleptocracy. It has happened, even in the US, and can happen in any democracy.

The middle-aged bourgeois, who have been encouraged to believe they are beneficiaries of the status quo, are coming to realise they are being shafted by the rich minority (their kids already know it). Either we will get progressive reforms the majority accept or (more likely) we will have another crash followed by radical change.

The UK community of investment managers and advisers barely acknowledge the breakdown of the current system or the pressure for change. That is like sitting on a sandcastle as the tide comes in.

They need to acknowledge trading bits of paper does not create wealth; it simply shuffles it from hand to hand. About the only thing economists agree on is that only primary investment – employment of capital in creating new goods and services – can improve standards of living. The stock market now plays virtually no part in primary investment. If you want to see the future, look at crowdfunding, not the listed markets. The ground is starting to shift under your feet.

Constrained by regulation, neither investment managers nor advisers in the UK are capable of much adaptation to change. They have little choice but to support the current system. But they at least need to be aware that change is going come.

Chris Gilchrist is director of Fiveways Financial Planning

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Very thoughtful piece Chris

  2. Nice article. Forward thinking and controversial and likely to be ignored and/or written off as subversive by most of us. We don’t like change, we’re no good at looking forwards, we don’t actually understand what’s happening now and we still haven’t grasped what has been happening until now! We’ll get it eventually, but probably only when it hits us in the face. Aren’t we supposed to be planners?

  3. I will comment from the point of view of a consumer – which is what I now am.

    Regulation: It is very uneven. I can open an account in (say) the Share Centre and buy almost anything – RTFS, AIM, Collectives and listed securities. However b to buy an annuity or go into drawdown I have to pass interrogations which would make the Stazi look benign. These interrogations waste huge amounts of time both for the customer and the firm and I would contend that most people have already made up their minds what they want. The regulation should be much more user friendly – is that a vain hope?

    Crowd Funding; Well Chris may put his money there but anyone with any sense would avoid it like the plague. Sure the interest rates look appealing, but: No FSCS cover, no collateral and far too many flaky propositions. No decent track records and not much chance of decent due diligence. As a punter – not for me thank you. Compared to this AIM looks a safe haven. I will disagree that the Stockmarket is a busted flush. The institutional investors are becoming more active and holding boards to account. From an individual perspective it is still the place to put your money and it really does help firms to provide the goods and services that Chris mentions. Sure they are the large outfits, but it has been shown that small entities can grow very fast on a recognised market if they have the right proposition. (Google, Dyson,Metro Bank,HW Martin etc).

    I think this is a very pessimistic view. That’s not to say that things shouldn’t change, there is plenty of scope for the existing institutions to improve. That the young are revolting is nothing new at all. If you are old enough just remember the 1960’s – far more youthful unrest. I would contend that the present dissatisfaction with politics is two fold. Professional politicians who have only run their noses or a bath, and too many snouts in troughs.

  4. Very good article by Chris. Interesting comments from Martin too. In August 2001 I was on holiday in Italy reading a book called was and anti war written by a couple of Americans called the Tofflers. It confirmed my thoughts from 1992 following the fall of the Soviet Union and what I read about world views on Islam. One month later and we were all sitting in front of our TV screens watching what some had been warning about happen.
    Read carefully what Chris has written, relate it to what we have seen in the FS world over the last 15 years and then think, dont take what the providers tell you as gospel.

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