If I am being perfectly honest, I find a lot of what we do a bit tiresome and unnecessarily complicated. In fact, I sometimes find myself embarrassed by how complex things sound when I am explaining them.
As Einstein once said: If you cannot explain it simply, you do not understand it well enough. I try and live by this mantra, which is, dare I say, one of my few strengths. I take great pleasure in being able to explain difficult concepts in words of one syllable. That said, prudent use of syllables seems not to be a concept regulators embrace with much enthusiasm these days.
I have already written that waste disposal, for example, has an inverse law of diminishing returns. Make it too expensive or bureaucratic to get rid of waste and it is easy to predict you will get fly-tipping. The same applies in all walks of life.
Take motorsport as a contrasting example to help explain the complexity paradox. There was a time when car racing was simple and drivers were the main factor in a winning team. But the sport’s governing body, having been leant on over the years by certain manufacturers, now has a rulebook so staggeringly complex even it finds it difficult to police.
Track limits is a simple example. Most circuits these days have huge run-off areas, which is great for driver and spectator safety. However, that has led to a problem with drivers using the run-off areas where it suits them to gain an advantage.
To curtail this anomaly, motorsport’s governing body, the FIA, has introduced track limits whereby, if a car goes beyond a defined mark, the driver gets a penalty. Instead of a simple solution, like an unpleasant curb, sensors and “observers” now adorn most circuits, leaving drivers seething at perceived injustices and the poor spectator bemused.
And the same applies to financial services. Over the years, our various regulators have tried to guide us in all manner of dark arts, like assessing a client’s attitude to risk and capacity for loss. There was once a time where we could be trusted to gauge this for ourselves based on nothing more scientific than our gut feelings. These days, an absolute minimum is a risk questionnaire.
At Thameside, we back this up with file notes and cashflow modelling, and make it absolutely clear it is just a guide for us to use, not a hard and fast indicator.
We recently dealt with a client who had been flirting with the idea of using a very well-known Scottish office (direct I might add), which had him as “medium to low” according to its software. Our preferred questionnaire is Standard Life’s 17 question version, which made him “medium to high”.
He was of the opinion Standard Life’s version was better, which is nice for us but makes a mockery of the whole process. All practitioners know the output largely depends on the sort of day the client is having and the mood they are in.
We will carry on lobbying for simplification across the board, with the loudest shouts aimed at the dreadful lifetime allowance and the decidedly complex Lifetime Isa.
Tom Kean is director at Thameside Financial Planning