Given his track record as a campaigner, 3R Insights founding partner Mick McAteer boldly claims that if he “can’t spot a potential misselling scandal or a product that is going to harm consumers, nobody can”.
Does he agree with many in the industry the defined benefit transfer market will be the next financial services scandal?
“It will but it’s difficult to work out the scale of it. I don’t think it will be the size of the last pensions misselling scandal because there are fewer individuals involved. It is a smaller market but the size of the redress bill could be bigger,” he says.
McAteer also fears pension freedoms have brought about more problems than solutions.
“Sadly, there has been a lot of scams and attempted scams. I think it’s going to take a while before the bigger damage becomes apparent. The experience of countries like Australia shows that what pension freedoms do is push up costs as the products are more expensive. Consumers have to pay more to produce the same outcomes and that pushes up the cost of saving.
“The cost of providing advice also goes up because the products that replace annuities are more complex. They need more advice to explain them and the risks involved. It makes it harder for ordinary people on lower incomes to save for retirement.”
For McAteer, auto-enrolment has been a successful policy, filling the pool of savings, but pension freedoms drain it away.
“Pension freedoms is a counterproductive policy which has been badly thought through and badly implemented. Far too many cheerleaders say ‘how can you be against freedom and choice?’ I’ve been highly amused at people accusing me of defending the insurance companies. But the amount of risk you have to take to generate the same level of income as an annuity is significant and the industry has not done a great job in explaining this to consumers.”
2016-present: Founding partner, 3R Insights
2007-present: Founder and co-director, The Financial Inclusion Centre
1993-2006: Data analyst, writer, principal policy adviser, Which?
1992: Consultant, European Union regeneration project
1989-1992: Analyst; Framlington
1987-1989: Assistant technical support manager, Henderson
This, like many things the industry could do better, is related to culture, he says.
“You have to be strong enough to say to consumers ‘we know you want access to your money but we need to tell you about the risks as they could be damaging to your long-term success’. In the rush to get out of annuities, people are not paying enough attention to the risks.”
McAteer describes his new consultancy business, 3R Insights, as a “critical friend” to the financial services firms that use it. The company was set up to help firms improve their culture and the analogy suits McAteer’s personal role in the industry. He is not known for telling the industry what it wants to hear. He tells it as he sees it, warts and all, but with the best of intentions.
“I’ve always been inspired by the Fair Trade model of achieving change by working with the industry rather than campaigning against it,” he says.
“I know a lot of people talk about consumer confidence but it’s so important. We recently did a large-scale study on what people thought of the leaders of financial services firms and were shocked at the level of distrust. People felt ethical behaviour was not encouraged and that is a problem for the industry. There is a real crisis of confidence and trust which needs to be addressed.”
Those who work in financial services will know how far the industry has come in cleaning up its act in recent years and McAteer is no exception.
“The culture has improved and firms are more consumer focused. The RDR has been a force for good as it has brought about greater professionalism and quality of advice in the sector. A lot of the stuff we see now are legacy problems. But we are not there yet, there is still a way to go,” he says.
Prior to setting up 3R insights, McAteer – a former FCA board member – and his colleagues analysed misselling scandals and warning notices issued by the FCA and its predecessor, the FSA, to understand the causes of the problems.
“The majority of cases were where leaders and the board had presumed companies were well run. As more information was pushed up the line, they were told it was okay. That is a feature of an organisation’s culture – junior people are scared to upset the more senior people, so they take bits of information out. As the senior people do the same, it goes up the chain with even more bits left out.”
McAteer’s own financial services career came about “more through luck than anything”. When he came to London from Derry, Northern Ireland, he worked on building sites and in a bar, then joined Henderson after responding to an advert in the Evening Standard.
“At the time, the City had changed quite a bit. It was taking on anyone who was good at accounts and maths,” he says.
McAteer then moved to Framlington. However, fund management was not for him and he soon found his calling in the campaigning side of financial services at Which?. By 2007, he had founded The Financial Inclusion Centre, an independent not-for-profit policy and research group, at which he is still works.
One of the things that concerns McAteer about the future is changing economic conditions and the labour market.
“A lot of financial services business models are built on the idea that people come out of university, get a job at 25, a mortgage at 30, build savings and sail happily in to retirement. That is an old-fashioned model of asset and debt accumulation,” he says.
“There has been a big rise in zero hour contracts and temporary work, so a sizeable proportion of households’ earning patterns are unpredictable. Financial services business models are not adapting to the new world of work. How we can meet the needs of those with no predictable cashflow is going to be a big challenge.”
What is the best bit of advice you’ve received in your career?
Don’t give up.
What keeps you awake at night?
The future post-Brexit, and what it means for the City and jobs. Also the possibilities; the opportunity for a new type of politics.
What has had the most significant impact on financial advice in the last year?
Defined benefit pension transfers.
If I was in charge of the FCA for a day I would…?
Increase the number of consumer representatives on the board of the FCA.
Any advice for new advisers?
Treat the job as if it’s a real profession because good advisers can make such a difference to ordinary people.