In 2009, business secretary Vince Cable said, “Investment banking has, in recent years, resembled a casino, and the massive scale of gambling losses has dragged down traditional business.” Having worked in both investment and bookmaking, gambling is simply more transparent, straightforward and honest.
Cable’s statement provoked disgruntled mutterings from investors and investment professionals. However, what is gambling but the wagering of money on an event with an uncertain outcome with the primary intent of securing additional money?
While investment has the expensive veneer of complex jargon, better architecture and far superior tailoring, it fundamentally remains wagering money on the probable performance of a stock or company with the primary intent of securing a healthy return on investment. In a word: gambling.
Those who argue that this is not the case – the perennial, “stock investment needs time, patience and fund management skills, all of which is not gambling” – have not spent enough time in the company of serious gamblers, who spend years mastering their trade, studying form and understanding the mathematical nature of some games of risk. The drunks in the betting shop or the once-a-year flutterers on the Grand National are not ‘gamblers’.
That said, it is probably the implied charge of opaqueness, complexity and dishonesty that will cause the most outrage. Yesterday we reported on the anniversary of the True and Fair Campaign which wants greater transparency on investment charges.
It found that 58% of investors are unaware of the cost and charges on their investment products. Between 2001 and 2011, 80% of funds had raised them, while 68% of active funds charge an identical fee, which smacks of cartel behaviour. In 2009, the UK had the fourth highest total charges of 19 countries and, weighted by assets, UK funds charged 79% more than US funds. Although we struggled to pin down all the sources and dates of some of these statements.
Creaming off substantial charges on the amount invested and then on the returns delivered is clearly a win for the investment manager, but not necessarily for the investor.
We have also covered the FairPensions study that ranked ethical funds on their responsibility. The critical but welcome research demanded more transparency, more aligned screening and greater investor engagement on the part of ethical funds.
We challenged the report on simply profiling ethical funds. The demands above should apply equally to the whole market; not just ethical funds.
We went on to suggest that when it comes to transparency, the whole sector remains opaque. This includes reporting all the companies invested in, the frequency of that reporting (every six months) and that most results are reported in inaccessible PDFs rather than in easy to access digital tables.
Morningstar, FE Trustnet and Interactive Investor, amongst others, all offer useful tools for understanding fund approaches and performance, but with 3,000 funds to choose from, very few people have the time to dig through the volumes of data.
It often seems that the industry has deliberately created complicated products to maintain a high power ratio with customers. If you do not understand a product but need the return it delivers, the provider has all the cards. Gambling reference intended. In attempting to explain all the risks of investing, they either discouraged saving and investing or wrote gibberish. This allowed them to push the less affluent, less well advised into lower returning, execution-only products.
This has clear benefits for financial professionals who can help investors make choices that are more informed without holding PhDs in investing. That said, we once asked a financial adviser to explain what a bond was in layman’s terms, to which this eminently qualified adviser replied, “It’s a bit complicated.” With the arrival of the retail distribution review, which makes charges for advice more transparent – in itself a good thing and better than opaque commission – more and more people will not be able to afford advice.
This ‘advice gap’ has grave consequences for savers and investors, especially when you consider nearly a half of the UK workforce is not saving enough for retirement. The industry is doing nothing to create simpler, high return propositions.
When it comes to honesty, many would trust a bookmaker over an investment manager.
Trust is essential for markets to function. Trust is only ever built on a foundation of honesty. Fundamentally, most people are honest. It is how our society functions with fewer than 140,000 police officers in a country of over 60 million. A very thin blue line indeed.
Poor performance, mis-selling (essentially a weasel term for fraud), high charges and passing the costs of massive corporate failure onto the taxpayer, have eroded trust in financial services to breaking point.
Excellent research by the Department for Business, Innovation and Skills (BIS), the Association of Independent Financial Advisers (AIFA), Datamonitor, YouGov and Edelman have all explored the issue of trust and reputation in financial services and how we can restore it. Typing “trust and reputation in financial services” into Google returns 67m results.
Citywire’s New Model Adviser reported that the Financial Ombudsman (FOS) had outlined a four-point plan to restore trust in financial services at the party conferences in 2012. Great.
A hundred-point plan is not going to tackle the culture of rapacious greed that dominates certain large investment firms, responsible for investing billions in assets. Irresponsible, unethical, unsustainable and profiteering, the firms have delivered exceptional results for their investors, but left a trail of destruction in their wake.
A plan on changing culture and better selling techniques also ignores the role of derivatives, currency trades and the growth of computer- and high-frequency trading which has no morality. To change attitudes on race in America, Martin Luther King did not say, “I have a four-point plan.”
We have a dream.
Break up investment and retail banks to reduce economic risk, then break up those investment and retail banks to create greater competition (so no one has more than 25% in any product class). If they fail, let them or nationalise them.
Prosecute wrongdoers to restore moral hazard. Introduce a Robin Hood tax on all trades to pay for some the essential medical, environmental and development work the world desperately needs.
Sunlight is the best disinfectant, so the industry should be forced to reveal more about their internal working and practices, regardless of the erosion of competitive advantage.
Funds should be compelled to prominently display total charges (similar to interest rates on lending products) and report on all their holdings and performance every three months in an easily accessible digital form.
Finally, report on the harm, deaths, pollution and waste caused directly and indirectly by investment activity. For example: “By investing in this fund, which in turn invests in tobacco stocks, you will be partly responsible for the deaths of x people in countries who have no access to health education or medical care once they and their children get cancer.”
Caveat emptor, and all that.
The more perfect the information, the more perfect the workings of a market, although this might reduce the profitability of financial professionals who have relied on an imbalance of information and knowledge.
Faux media outrage (when taking the corporate shilling to promote the products), incremental changes such as four-point plans and the noble words of politicians are not going to be enough.
Our country needs financial services to work for the benefit of the whole of society and our planet. Sustainable businesses need the investment it creates and ordinary people need the returns it can deliver.
The time for greater transparency, simplicity and honesty is now.
How Going Green Can Save A Company Money
What is going green?
Going green means to live life in a way that is environmentally friendly for an entire population. It is the conservation of energy, water, and air. Going green means using products and resources that will not contaminate or pollute the air. It means being educated and well informed about the surroundings, and how to best protect them. It means recycling products that may not be biodegradable. Companies, as well as people, that adhere to going green can help to ensure a safer life for humanity.
The first step in going green
There are actually no step by step instructions for going green. The only requirement needed is making the decision to become environmentally conscious. It takes a caring attitude, and a willingness to make the change. It has been found that companies have improved their profit margins by going green. They have saved money on many of the frivolous things they they thought were a necessity. Besides saving money, companies are operating more efficiently than before going green. Companies have become aware of their ecological responsibility by pursuing the knowledge needed to make decisions that would change lifestyles and help sustain the earth’s natural resources for present and future generations.
Making needed changes within the company
After making the decision to go green, there are several things that can be changed in the workplace. A good place to start would be conserving energy used by electrical appliances. First, turning off the computer will save over the long run. Just letting it sleep still uses energy overnight. Turn off all other appliances like coffee maker, or anything that plugs in. Pull the socket from the outlet to stop unnecessary energy loss. Appliances continue to use electricity although they are switched off, and not unplugged. Get in the habit of turning off the lights whenever you leave a room. Change to fluorescent light bulbs, and lighting throughout the building. Have any leaks sealed on the premises to avoid the escape of heat or air.
Reducing the common paper waste
Modern technologies and state of the art equipment, and tools have almost eliminated the use of paper in the office. Instead of sending out newsletters, brochures, written memos and reminders, you can now do all of these and more by technology while saving on the use of paper. Send out digital documents and emails to communicate with staff and other employees. By using this virtual bookkeeping technique, you will save a bundle on paper. When it is necessary to use paper for printing purposes or other services, choose the already recycled paper. It is smartly labeled and easy to find in any office supply store. It is called the Post Consumer Waste paper, or PCW paper. This will show that your company is dedicated to the preservation of natural resources. By using PCW paper, everyone helps to save the trees which provides and emits many important nutrients into the atmosphere.
Make money by spreading the word
Companies realize that consumers like to buy, or invest in whatever the latest trend may be. They also cater to companies that are doing great things for the quality of life of all people. People want to know that the companies that they cater to are doing their part for the environment and ecology. By going green, you can tell consumers of your experiences with helping them and communities be eco-friendly. This is a sound public relations technique to bring revenue to your brand. Boost the impact that your company makes on the environment. Go green, save and make money while essentially preserving what is normally taken for granted. The benefits of having a green company are enormous for consumers as well as the companies that engage in the process.
5 Easy Things You Can Do to Make Your Home More Sustainable
Increasing your home’s energy efficiency is one of the smartest moves you can make as a homeowner. It will lower your bills, increase the resale value of your property, and help minimize our planet’s fast-approaching climate crisis. While major home retrofits can seem daunting, there are plenty of quick and cost-effective ways to start reducing your carbon footprint today. Here are five easy projects to make your home more sustainable.
1. Weather stripping
If you’re looking to make your home more energy efficient, an energy audit is a highly recommended first step. This will reveal where your home is lacking in regards to sustainability suggests the best plan of attack.
Some form of weather stripping is nearly always advised because it is so easy and inexpensive yet can yield such transformative results. The audit will provide information about air leaks which you can couple with your own knowledge of your home’s ventilation needs to develop a strategic plan.
Make sure you choose the appropriate type of weather stripping for each location in your home. Areas that receive a lot of wear and tear, like popular doorways, are best served by slightly more expensive vinyl or metal options. Immobile cracks or infrequently opened windows can be treated with inexpensive foams or caulking. Depending on the age and quality of your home, the resulting energy savings can be as much as 20 percent.
2. Programmable thermostats
Programmable thermostats have tremendous potential to save money and minimize unnecessary energy usage. About 45 percent of a home’s energy is earmarked for heating and cooling needs with a large fraction of that wasted on unoccupied spaces. Programmable thermostats can automatically lower the heat overnight or shut off the air conditioning when you go to work.
Every degree Fahrenheit you lower the thermostat equates to 1 percent less energy use, which amounts to considerable savings over the course of a year. When used correctly, programmable thermostats reduce heating and cooling bills by 10 to 30 percent. Of course, the same result can be achieved by manually adjusting your thermostats to coincide with your activities, just make sure you remember to do it!
3. Low-flow water hardware
With the current focus on carbon emissions and climate change, we typically equate environmental stability to lower energy use, but fresh water shortage is an equal threat. Installing low-flow hardware for toilets and showers, particularly in drought prone areas, is an inexpensive and easy way to cut water consumption by 50 percent and save as much as $145 per year.
Older toilets use up to 6 gallons of water per flush, the equivalent of an astounding 20.1 gallons per person each day. This makes them the biggest consumer of indoor water. New low-flow toilets are standardized at 1.6 gallons per flush and can save more than 20,000 gallons a year in a 4-member household.
Similarly, low-flow shower heads can decrease water consumption by 40 percent or more while also lowering water heating bills and reducing CO2 emissions. Unlike early versions, new low-flow models are equipped with excellent pressure technology so your shower will be no less satisfying.
4. Energy efficient light bulbs
An average household dedicates about 5 percent of its energy use to lighting, but this value is dropping thanks to new lighting technology. Incandescent bulbs are quickly becoming a thing of the past. These inefficient light sources give off 90 percent of their energy as heat which is not only impractical from a lighting standpoint, but also raises energy bills even further during hot weather.
New LED and compact fluorescent options are far more efficient and longer lasting. Though the upfront costs are higher, the long term environmental and financial benefits are well worth it. Energy efficient light bulbs use as much as 80 percent less energy than traditional incandescent and last 3 to 25 times longer producing savings of about $6 per year per bulb.
5. Installing solar panels
Adding solar panels may not be the easiest, or least expensive, sustainability upgrade for your home, but it will certainly have the greatest impact on both your energy bills and your environmental footprint. Installing solar panels can run about $15,000 – $20,000 upfront, though a number of government incentives are bringing these numbers down. Alternatively, panels can also be leased for a much lower initial investment.
Once operational, a solar system saves about $600 per year over the course of its 25 to 30-year lifespan, and this figure will grow as energy prices rise. Solar installations require little to no maintenance and increase the value of your home.
From an environmental standpoint, the average five-kilowatt residential system can reduce household CO2 emissions by 15,000 pounds every year. Using your solar system to power an electric vehicle is the ultimate sustainable solution serving to reduce total CO2 emissions by as much as 70%!
These days, being environmentally responsible is the hallmark of a good global citizen and it need not require major sacrifices in regards to your lifestyle or your wallet. In fact, increasing your home’s sustainability is apt to make your residence more livable and save you money in the long run. The five projects listed here are just a few of the easy ways to reduce both your environmental footprint and your energy bills. So, give one or more of them a try; with a small budget and a little know-how, there is no reason you can’t start today.