Terry Smith is someone who has benefited enormously through the period known as Big Bang 1985-87 and has profited enormously since that evolutionary period so I was somewhat surprised to hear that he has changed his mind after 25 years about the ramifications of Big Bang. Of course this all seems very commendable although just a wee bit hypocritical of Mr. Smith. I’ve not met him, have no intention of doing so just yet but wish him every (even more!) success with Fundsmith which was launched a while back to take advantage of the opportunities opening up as a result of RDR (more on that later!).
Reading the article and the Radio 4 interview on TerrySmithBlog.com it would appear that Mr Smith (like the majority in the City these days) thinks that the City today is more professional than pre-1985-87. I’m afraid I disagree totally. Despite the long lunches in the good ol’ days (& just for record the number of City restaurants has grown enormously and it’s even more difficult these days to get in to some of them at the various sittings) and the old school tie brigade, it’s fair to say that deals were done on handshakes and were rarely broken. Partners took 100% UNLIMITED liability and business took preference over regulation. In fact clients were regarded with paramount importance.
Today the client is last. First it’s the ego’s and rewards of the swathes of people on trading desks, followed by the interests of the companies and the clients are simply seen as profit-centres. The conspiracy to ignore investing for people and institutions thus providing support for industry is ably assisted by compliance departments who basically work for the Directors of these organisations. It’s rather like watching a senior cow hand keeping his cows in check. There’s little regard for common sense, intelligence and education but a hell of a lot of regard for Degrees from second rate universities, inane Continued Professional Development which could include the reading of a few newspapers and attending a few training courses on how to learn about f/x, derivatives, etf’s, cpd’s and even “what are stocks & shares?”
It’s become a pickled universe full of pickled people who haven’t the foggiest idea about what their roles are. Many of them think that they are big achievers too. The frightening thing is that many of the modern brigade are 3-12 years out of these universities and manage many billions. Many have little understanding of how the world works and what makes life tick.
You’re probably thinking by now that I’m a sad narrow-minded individual who has seen his best years slip by and is envious of many around him. Actually you’d (probably) be quite wrong. I pride myself in open-mindedness but am continually bemused by how the financial services industry has forgotten its raison d’etre and I’m convinced that it is ‘regulation regulation regulation’ that has done the damage.
In the good ol’ days broking offices were full of (maybe sleepy & sozzled around lunchtime) enchanting partners, mildly eccentric wizards of the John Keynes vintage, east end dealer types who had often as not been given a leg up because the Senior Partner and the firm had maintained a relationship with the young jackal’s school, middle aged secretaries and the occasional stockinged girl from the East End who’s daily topic was her visit to the pie-mash shop. The Partners were usually military types, army navy and merchant marine (rarely airforce), commonwealth office types, land-owners, ex-academics and were ruthlessly examined by those in the partnership. Occasionally a firm failed because of a rogue trader or partner but this was a rare experience. Usually the partnership rallied round, met the liability (sometimes to the market and other times to a client) and behind closed doors decided to deal with the miscreant accordingly. Early retirement or a painful rebate to the partnership would entail.
Since Big Bang the great game has changed for the worse. The numbers are bigger as Terry Smith has explained but the losses have got even greater. What does NOT appear to be happening though is that miscreants are challenged and I suspect that has a lot to do with the fact that there are so many things going wrong in the modern financial universe. Take complaints as an example. Pre-Big Bang any complaint was handled immediately, the client put right and the loss taken accordingly. Today financial firms are encouraged and instructed by the regulator to handle it more professionally and more openly. What this actually means is that it can now take up to 8-10 weeks for complaints to get finalised.
In my view this is unprofessional but according to FSA and compliance the complaints process needs to be conducted like this. There is no account taken of ‘reputational risk’ so the client gets thought of last. So much for the new doctrine “Treating Customers ( I prefer Clients) Fairly” which is frankly an utter joke. Unhappy clients equals no business in my ‘real’ world where I still take 100% UNLIMITED liability. But of course I have to comply, just like Mr Smith.
I don’t expect Mr Smith to agree with me about the lack of true professionalism in today’s City but to members of the public spare a thought for the wise old Members who voted against the radical changes that led to the opportunities that Mr Smith so effectively profited from. They were mainly of the officer classes, knew how to lead, knew how to manage, knew when to cut their losses, knew the map of the world inside out, knew and respected industrialists and entrepreneurs alike, understood when politicians and economists got it wrong, took losses on the chin, never complained, never made u-turns on matters of importance (note Mr Smith), honoured their commitment & debts, treated their staff with utmost respect……this is the City pre-Big Bang, it was a better place and far more professional than today’s politicians, regulators, City grandees than would many have us believe.
It’s a shame that the vote was carried marginally through on the old market floor on that eventful day as things could have been so much better in my judgment. Just think what might have happened if brokerages had been left alone in the technology world with a soft touch regulator. So many of the old partnerships could well have survived and prospered but for the regulatory regime that has accelerated since Big Bang. And there’s no sign of it slowing down either…….More on RDR later.
PS I am LONG of Tullett Prebon Ordinary Shares for clients as I believe Mr Smith’s inter-dealer broker is an excellent investment in these interesting times. For the record I don’t have to applaud the traders language and style to be a fan of the firm.