ANDY AGATHANGELOU is one of the most influential thought leaders in the UK investing industry today. He’s the founding chair of the Transparency Task Force — an organisation set up in 2015 to try to make the industry fairer and less opaque.
In this interview, Andy explains why transparency is so important, why he puts so much emphasis on them importance of good financial advice, and how you can ensure that you can really trust the adviser you work with.
Remind us, Andy, how your interest in transparency came about.
I joined the financial services sector, in retail financial advice, in 1986. Everything was like the Wild West; some say it still is, a little bit. What I’ve experienced over the last 30 years or so in my career are times when I’ve felt very proud to be in the sector; but, if I’m honest, occasionally I’ve felt a little bit awkward about it, or even embarrassed and sometimes even quite ashamed.
There is a very small group of people within the industry who, over the years, have managed to do a lot of harm. I call this group the “mischievous minority”, but the sad reality is they really have tarnished the reputation of this sector.
So I started to think more and more about what could be done to help rebuild trust and confidence, and I’ve started to see a very strong correlation between transparency and truthfulness and trustworthiness.
What did the Transparency Tank Force set out to achieve?
The Transparency Task Force kind of happened by accident. I gave a speech in May 2015 at the Senate House at London University to a room full of financial services people. It was all about the idea that finance is profoundly important to the well-being of society, to economic and political stability. But I also said that the industry has to be trustworthy for it to function effectively. I spoke from the heart and explained that, very simply, we have to not rely on the regulators and government to get the industry to behave properly. We have to fix it from within. So it was all about the idea of like-minded people within financial services finding ways to work together, to drive positive, progressive and purposeful reform.
A valuable contribution the TTF has made has been to raise awareness — not just among investors, but financial professionals as well — of the importance of cost. In your view, just how important is it?
I would say that transparency in costs and charges is very important indeed. The mathematics of the topic prove time and time again that even a very small difference in net cost over a long period of time can make a phenomenal difference to the outcome that the consumer actually achieves. So knowing what the costs are, and knowing what the impact of those costs are going to be on long-term outcomes, is extremely important.
There is a big “however”, though, and that is this: costs are not the only thing. There are so many other things to take into account, like performance and risk. And people have become increasingly concerned about ESG, impact on climate change, societal impact, etcetera.
What’s your view on financial advisers? After all, some advisers are more au fait with the importance of cost than others.
I really do understand the difference that a good financial planner can make to a client’s overall outcome and wellbeing. Compared to everything else, having the right adviser is probably head-and-shoulders above everything else. And that’s all about a trust-based relationship — having an adviser who genuinely puts the interest of the client first and foremost. This is absolutely key. I can only think of my own situation. When I’ve experienced the value that can be provided by a good financial planner, it’s been beyond measure.
The difficulty, frankly, is for the client to differentiate between a good adviser and perhaps a not-so-good one. And that’s not easy. It comes down to personality, it comes down to chemistry.
Transparency is very, very important. Advisers who tend to be open and upfront about the way they charge, for example, are far more likely to have the kind of characteristics to suggest that this is somebody you can put your faith and trust in.
What matters really above all else is the ability of the adviser to get inside the client’s head — to figure out the difference between what the client wants and what the client actually needs.
Another problem, of course, is that the proportion of people receiving financial advice is still very small.
Yes. One of the unintended consequences of all the regulation that’s now in place is that it’s very expensive to provide good-quality, regulated financial advice. That has simply priced many people out of the market altogether. They’re either not getting advice at all, or they’re getting advice in a kind of pseudo-robo type of way. It’s not really ideal.
If I had a magic wand, it would be to enable proper, regulated, one-to-one advice to be given to everybody that wants it. That’s clearly unrealistic in this day and age.
The next challenge for the consumer is: how do you differentiate between a good adviser and a great adviser? Not easy. Recommendations obviously are key. Brand is relevant to a point, but it’s perfectly possible for a rogue adviser to be operating under a good brand. Equally it’s perfectly possible for a very good adviser to be operating in a very small advisory practice that nobody’s ever heard of. So the responsibility, ultimately, is on the client to do some shopping around, to apply a bit of due diligence, to go about it in a cautious and careful way.
Charlie Munger once said, “Never, ever think about something else when you should be thinking about the power of incentives.” In your experience, do the sorts of problems you’re talking about all boil down to incentives?
Incentives are extremely important. My favourite Charlie Munger quote is, “Show me the incentives, and I’ll show you the outcome.” There’s a lifetime’s wisdom in that, and it’s so, so true.
There’s a lot wrong with financial services and that needs to be changed, and a lot of it is down to the way incentives almost encourage short-termism, profit-before-principle, conflicts of interest and so on.
We’re embarking on a major international project at the moment, where we’re looking at some of the underlying reasons for some of the distrust that’s out there. We have an industry which is completely dependent upon being trusted. If you take trust and confidence out of financial services, what have you got left? Not a lot. Despite the importance of it, there has never been a co-ordinated, cohesive international project to attack the trust deficit head on. Until now.
Our project is dedicated to responding to a key question: “How can we accelerate the rebuilding of trust and confidence in financial services?” It’s a profoundly important question, and we’re very confident that we can bring together all the key stakeholders, by which I mean politicians, policymakers, regulators, trade bodies, professional associations, practitioners, market participants, thought leaders, civil society leaders etcetera.
We’re running events around the world, and we have a five-year project where we’re going to be creating a number of work streams. All that thinking is going to end up in a book, and we’re going to use the book as a roadmap to take us from where we are to closer to where we want to be — an industry that’s rightly trusted by the consumer and by the public at large.
What then do fund trustees need to do to ensure that the advice they receive from a consultant is good advice, and worth the expense?
I think there have been instances in the past where a trustee board has been quite myopic or even blinkered about the advice they’ve received. What I mean by that is that they haven’t checked it with other parties, they haven’t been seeking second opinions. They haven’t gone out of their way to kind of “sense check” if what they’re being told or guided towards is good. What you end up with is this dependency culture — trustee boards who’ve found themselves becoming dependent upon the advice being given to them by their incumbent advisers.
I think time has moved on. Trustee boards are starting to shop around and are becoming a bit more savvy. There’s increasing pressure on them to be able to evidence that they are becoming challenging purchasers of services. That’s certainly what The Pensions Regulator is requiring of them.
I think it’s become absolutely necessary for investment consultants and trustee boards to have very open, honest relationships, where it’s not a simple case of the trustee board accepting, at face value, what’s being told to them by the consultants. Good clients are clients that challenge. Good consultants are consultants that don’t mind being challenged, and are confident that they can give a very good account for themselves.
How hopeful are you that we’ve turned a corner on transparency? Are you hopeful that consumers in the future will have a clearer idea of how much they’re paying and the value they’re receiving in return?
I think there’s been a bit of a zeitgeist blowing through for the last few years around transparency. There have been some wonderful individuals, such as Dr Chris Sier, Gina Miller and many others who, for a long time, have been doing some wonderful campaigning, for sure.
As a result of their work and the good concerted effort by the regulators, I think transparency is high up on the agenda. And there are many organisations that are really embracing it, that don’t see it as a threat but as a commercial virtue. So the direction of travel is very, very encouraging.
We can’t be satisfied, though, until a member of a trustee board or an individual consumer can refer to one simple number to really understand the overall costs being incurred on their investment. Only then will we have true comparability. But we’re getting there.
And presumably you’d like to see the Transparency Task Force playing an instrumental role in bringing about that change?
It’s early days, but I think we’ve got a pretty bright future ahead of us. Everything we manage to achieve, however, will be down to one thing: and that’s the input of a group of people who are acting on a voluntary basis. People who would rather stand up than stand by. People who understand the difference between opacity and transparency, and right and wrong. People who understand the importance of putting the client at the centre of everything we do. These are people that I feel very proud and very privileged to work with.
