Andy Agathangelou founded the Transparency Task Force (TTF) just two years ago. Since then he has built nine teams of 263 volunteers and is starting to expand his work internationally. We talk to him about the importance of the TTF, the challenges he has faced and his next steps.
I joined financial services in 1986, before it was regulated. I have lived and worked through dozens of embarrassing and shameful scandals that have affected the reputation of the sector for decades. It now seems almost routine for somebody somewhere to be caught doing something wrong to somebody, yet financial services is completely trust-dependent. The industry doesn’t have a tangible product; it relies on intangible concepts that broadly rely on the notion that the supplier is going to deliver what they have promised.
In May 2015, I spoke at a meeting about what an appalling job the industry is doing of behaving in a trustworthy way. I had found a piece of research conducted by Edelman – the Edelman Trust Barometer – which is an analysis of the trustworthiness of different markets. Banking and financial services were consistently shown to be the least-trusted sector. I highlighted the major disconnect between an industry that needs trust to survive and thrive, and an industry that consistently behaves in a completely untrustworthy way. The feedback from the 25 plus senior finance people there was, yes, this is a major problem. I suggested that we should do something about it, they agreed. I had some experience of conceiving and creating collaborative communities which then led me to establish The Transparency Task Force (TTF), a community dedicated to driving up the levels of transparency in financial services around the world.
I highlighted the major disconnect between an industry that needs trust to survive and thrive, and an industry that consistently behaves in a completely untrustworthy way.
There hasn’t yet been an intelligent study about how transparent the UK is compared with other countries, so no one can really answer that question. One of our teams – The International Best Practice Team – is working towards creating a Global Transparency Index which will rank countries by transparency, using both quantitative and qualitative measures. The analysis will start with five countries; UK, Australia, Canada, USA and Holland. We are looking at Holland because we know that the Dutch have done a tremendous job of driving forward transparency through their regulatory structure, particularly in asset management. I would say that Holland is leading the way, at least in Europe. We know that some countries are woefully behind the Dutch but some parts of the world really aren’t doing badly at all.
Here in the UK, we have made tremendous progress in the last 12/18 months, mainly due to the quality and quantity of work done by the FCA. There will be a section in the report on the progress made by regulators to try and move the transparency agenda forward. I would like to think that the UK will score particularly highly in that section because of what the FCA has been doing.
Duty of care is a concept that the industry needs to wholeheartedly embrace, the idea of putting the customers’ interests first and foremost wherever possible. Without that, we will always depend on the regulator to enforce behaviour instead of us simply behaving properly. So I would seek to create a framework where all market participants bought into a best interests code and operated by it.
The next change would be a review of platforms. They need to be forensically evaluated and have some interesting questions to answer. For example, why is it so hard for new organisations, with decent propositions, to actually get onto platforms? Without a platform, it’s like having a business without a shop window and at present, it is too difficult for new organisations to get noticed, regardless of the quality of their offering.
Education is incredibly important too. The markets will not function properly if the population is unable to distinguish between a good investment offering and a bad one. Education about the fundamentals of investing is absolutely key. Ideally, it would be introduced at school level. We have recently established a new community called Team PAM and investor education is one of the ideas we’re discussing. The letters PAM stand for Progressive Asset Managers. Team PAM brings together progressive asset managers, who are happy and willing to embrace the regulatory change that is taking place. Adam French [Scalable Capital CEO] is involved, which is great; other firms are participating too – it’s got off to a great start. On the first call we had with Team PAM, we discussed ‘what can we do to help educate people about the fundamentals of investing?’. We want everyone to be able to make well-informed, evidence-based decisions about what is best for them so that they don’t get duped into inappropriate strategies. We want to have a marketplace that knows enough about the options to make the right decisions.
In the UK, we have made tremendous progress in the last 12/18 months, mainly due to the quality and quantity of work done by the FCA.
I think there are two ‘mega drivers’ positively impacting financial services – transparency and technology. If one of those mega drivers is improved, there will be all sorts of positive consequences elsewhere in the ecosystem of finance. If you drive transparency up, you will see improvements in culture, pricing, competition, outcomes, reputation and so on. Exactly the same applies if you drive up the adoption of technology in the sector. Transparency and technology have the power to work incredibly effectively together; they are mutually supportive.
If you sketch a chart to show the interrelationship between technology and transparency with the X axis as transparency and the Y axis as technology, the closer to the top right the organisation scores, the better. As an example, Scalable Capital is high transparency and high technology so it’s positioned in the right-hand corner, which is where we would like all market participants to get to eventually. The bottom left-hand corner is where you find those companies with low transparency and low technology. Those businesses will tend to have an unnecessarily expensive cost base because they are hampered by old, clunky legacy systems; they may not be fully disclosing their offering’s costs and charges appropriately, and they may not be reporting performance all that well either. The bottom left-hand corner represents the ‘old guard’ that we need to get away from and it’s down to transparency and technology to drive the market forward. The new players on the block, who have transparency and technology in their DNA are always going to do well. The rapid growth of Scalable Capital doesn’t surprise me. It’s highly transparent and makes terrific use of tech; any organisation that does so is bound to do well. Transparency and technology are commercial virtues and it’s clear that some firms are realising this far more quickly than others.
There is room for improvement everywhere, nowhere is perfect, but there are some exemplars coming to the surface. Generally speaking, the younger the organisation, the more likely it is that their business model will truly embrace transparency and technology. The worst are those companies that have done tremendously well in the past and who now have lots of expensive legacy structures and funds that are so large that they are becoming expensive to manage effectively. This ‘old guard’ is gradually being replaced by the ‘new order’. The new order tends to provide high value for money and is led by a more enlightened form of leadership – leadership that see its role as being more than just making money for shareholders – leadership that is far more determined to drive good outcomes for clients first and foremost.
We want to have a marketplace that knows enough about the options to make the right decisions.
The biggest challenge has been simply prioritising what needs to be done because parts of the industry are riddled with opportunistic obfuscation and opacity. Some businesses are deliberately less than completely transparent and they seek to capitalise on the asymmetry of information they create.The most obvious example of this is the hidden cost of charges in asset management; it’s a major systemic problem.
The issue is the relationship between what is good for the commercial well-being of the firm and what is good for the financial well-being of the client. This means there is a tension between the client and the shareholder, therein lies the issue. The shareholders have high expectations about returns, the boards running those organisations are under pressure to deliver profit to expectations.
There are issues across every part of the industry which is why, in just two years, we have ended up with 263 volunteers organised into nine teams. The teams discuss and debate what needs to change. We then formulate a strategy for driving that change, work out who the key people are that we need to engage with and then we set out to try to influence outcomes. There is a lot of work going on, each team is helping to drive change. I use the word ‘change’ very purposefully as the TTF isn’t just a talking shop, it isn’t just about bringing people together who are going to moan and groan about the state of the world, each team is actually driving change, we’re a solution-oriented community of changemakers.
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According to the ONS, the current level of saving in the UK is 3.3 percent, the lowest it has been since 1963. I am old enough to remember how tough times were in the 1970s and when you realise that we are saving less now than we were then, it makes you think just how bad things are from a saver’s point of view. I think that the low level of trust in financial services is one of the reasons for that, to which the crash of 2008 was a major contributor.
On 13th September – 10 years to the day since Northern Rock was bailed out – we are running a conference called: “It Must Never Happen Again!”. If the market continues to behave so badly that we have systemic crashes around the world, what impact is that going to have on savers? When you ask someone to put money away for their future, you are having to compete with all sorts of short-term and medium-term priorities. You have to get people to forego immediate gratification. We have to motivate people to want to do that and every time there is any kind of misselling scandal or any kind of bad publicity about fund managers, we are eating away at and corroding the confidence in the sector. In a generation from now, I can see that there are going to be tens of thousands of people who are too old to work, but unable to afford to retire and that is going to have all sorts of dangerous socio-political implications. Millennials in particular need to be offered solutions that they can trust and have faith in, and that means solutions that are hardwired to high transparency and high-tech.
My general take was that it was extremely positive. My colleagues and I were extremely impressed by the interim report which was published in November 2016 and the Final Report was just as thorough. It seems that the FCA is creating a regulatory framework that it can tighten up in the future if it wants to. It is putting in place the requirements for there to be independent directors on authorised funds and making it crystal clear that if these independent directors don’t do a good job of improving governance and driving value for money, regulatory expectations can and will be raised. It would be an easy mistake to judge the Final Report based on what the short-term approach is going to be. The way I see it is that the FCA is inviting the industry to behave properly under the new framework. If it doesn’t, then the FCA is just going to tighten the noose.
The new players on the block, who have technology and transparency in their DNA are always going to do well.
Internationalisation is the key theme for us right now. We have done all we can to establish ourselves as a collaborative campaigning community in the UK but I’m very pleased to report that the message is getting out there to other countries too. We have our first ever overseas symposium on the 28th September in Boston, then we have one in Amsterdam on 26th October, and then we are in Cape Town on 24th January. All of these events will be about the same question; “How can the financial services sector harness the transformational power of transparency to drive the change that is so desperately needed?”. The opacity problem is completely international. If 10 years from now the TTF was helping to move the debate forward right around the world then that would be great.
I feel very passionate and purposeful about what we do. Thank you for the opportunity to engage and share my views. The more organisations there are like Scalable, that are innovative, intelligent and willing to embrace and lead the change, that really do rattle the cage of the old guard, the better. And best wishes to the organisation moving forward.
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