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It’s a kind of magic

Many years ago, while still in short trousers, the job I wanted most in the world was to be a magician. It was a fairly short-lived career ambition, sitting somewhere between cowboy and astronaut in terms of my rapidly changing vocational aspirations at the time.

But not before spending an entire month’s pocket money on a “course” designed to teach me magic tricks which was advertised in one of the weekly comics, probably The Dandy, that I used to read avidly back then.

I would have been a rubbish magician, not helped by the fact that the “course” I had spent a whopping 10 shillings on consisted more or less of a couple of sheets of badly mimeo-graphed paper, some string and three plastic cups with a small marble.

One of the words on that badly printed sheet of paper remains with me to this day, helping me to understand the way that many financial services companies operate.

That word is “misdirection”. Although the execution itself depends on the magician’s skills, the concept itself is easy to understand. It is based on tricking the mind by giving a wrong picture to the audience. The trick may be as simple as a magician rolling up his sleeves and saying “nothing up my sleeve”. The audience looks carefully at the magician’s arms but ignores where the object is hidden.

One of the most important things to remember when thinking about misdirection and magic is this – one movement conceals a different movement. Nowhere is it being applied better than in the case of Barclays, specifically with respect to the way it has responded to accusations of misselling by its salespeople, who persuaded hundreds, possibly thousands of bank customers to switch their money into Aviva’s global balanced income fund.

In recent weeks, Money Marketing journalists have performed a fantastic job in highlighting what took place. From the middle of 2006 onwards, an entirely new fund managed to attract spectacular amounts of money, grow ing to more than £230m in less than 12 months.

Most of this growth came via sales from Barclays, described by Aviva’s as one of the insurer’s “strategic partners”.

Incidentally, it is worth noting that neither the term “strategic partners” nor its application is unique to Aviva. In the aftermath of CP121’s depolarisation proposals in 2002, it has been increasingly used to describe the process of creating multi- tied relationships between insurers and their “distributors”, in this case, the banks.

In other words, the process we are witnessing in the case of Aviva’s fund is a direct consequence of rule changes that allowed banks to do deals with a range of providers to sell their products and earn commission from them, all in the interests of creating greater consumer choice.

Anyway, back to Barclays, whose salespeople managed to convince customers that rather than spread their money widely between a range of funds, thereby reducing risk and volatility, it made perfect sense to place their entire life savings in the global balanced income fund. By most people’s definition, this would constitute the most basic ABC of financial advice, so to discover that Barclays operated differently is quite astonishing.

But what is particularly interesting, and takes me back to my days as a budding magician, is the misdirection being applied by the bank to justify what happened.

Following increased media attention and with growing numbers of cases being picked over by journalists, Barclays decided to come clean.

But the story it is putting over does not involve the bank holding its hands up and admitting that sales staff were guilty of churning and misselling.

No, the real problem is that, according to a Barclays spokesman: “Under the original framework, the fund was assessed as ‘balanced’. A new, different methodology for assessing customer risk appetite was introduced over several months starting in July 2007.

“The fund is rated as ‘adventurous’ under this framework, although, due to a procedural error, the fund was sold as ‘balanced’ to clients who went through the new methodology between July and December 2007.”

Effectively, Barclays is saying that no misselling took place between the summer of 2006 and mid-2007, when the vast bulk of investments into the fund were made. Therefore, there is no need to pay any compensation for sales made outside the periods in question. And even for the period between July and December 2007, no misselling took place, only a misclassification of the fund itself.

What is interesting about this approach is that – with the notable exception of Paul Farrow at the Daily Telegraph – at least one report I have read of what happened at Barclays simply accepts the bank’s assertion, questioning only the fact that no compen- sation has yet been paid for this “misassessment” of the fund’s risk rating.

In other words, Barclays’ misdirection appears to have worked, at least temporarily.

Almost 100 years ago, Jean Hugard, one of the foremost card magicians the world has ever known, wrote: “The principle of misdirection plays such an important role in magic that one might say that magic is misdirection and misdirection is magic.”

Truly, what Barclays is telling us is magic at its very best.

Nic Cicutti can be contacted at nic@inspiredmoney.co.uk

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