Wednesday, 30 September 2009

Market Research and Social Media

Today I presented again on 'Behavioural Targeting of Online Advertising', this time at the 5th Annual Online Research Conference in London. Not that I advise any clients in the area, but I've tried to keep up to date in light of the whole Phorm controversy.

Unfortunately I couldn't stay for the day, but I did catch the morning.

I enjoyed Mark Earls' presentation on the changing relationships between people and organisations, and the role of market researchers as mediators who can help everyone adjust to the new reality. It was also interesting that he picked up on the useful role that the tons of publicly available data can play, and that reminded me of Hans Rosling's excellent presentation on that subject at TED:

Mike Hall of Verve tried to define a new medium called the 'online brand community'. There was no time for questions but this seems to assume the brand is at the centre of things, and I wonder what Mike would say about the research value of comments people publish in the complete absence of the brand? In distilling the essence of community in 6 'rules', Mike also said that 'participation is the oxygen of the community'. But surely the 'oxygen' is whatever induces participation. And it's too simplistic to state as another rule that people participate online to obtain information. Some want to broadcast, others to listen. As the guys from InSites Consulting reported, people tweet to chat socially, 'show off' a rare URL, upload photos, or because they're curious, want a laugh or to be made to wonder. I guess that information is at the heart of all those things, but there's far more to it.

I'm sure the afternoon was just as thought-provoking. Definitely an event to keep an eye out for next year.

Tuesday, 29 September 2009

Never Say Don't... Without Saying Do...

Hat-tip to the Financial Services Club for highlighting Newsweek's quotes of the credit crunch. The last one in particular caught my eye. It was taken from a speech by President Obama in New York on 14 September:
“I want everybody here to hear my words. We will not go back to the days of reckless behaviour and unchecked excess at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses. Those on Wall Street can not resume taking risks without regard for consequences and expect that next time, American taxpayers will be there to break their fall.”
Wise words, but beware the power of suggestion when quoting them. The word 'not' only appears twice amidst 67 other words describing how to bring the economy to its knees. Cue vague public agreement from Wall Street, but no real sense of understanding that would help generate change. That's because, despite the context, bankers hear this:
“....go back to the days of reckless behaviour and unchecked excess at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses. Those on Wall Street can resume taking risks without regard for consequences and expect that next time, American taxpayers will be there to break the fall.”
Now I don't mean to suggest that the President is missing a trick when it comes to great orations or political rhetoric. The problem lies in Newsweek's choice of sound bite.

By contrast, I prefer a quote from Lord Turner's recent attacks on the same evils. And the strong adverse reaction of bankers illustrates why it is better to speak in positive terms about change. Not only does the reaction signal that the bankers realise Lord Turner is not suggesting a return to past practices, but also their real anger at the vision of what's expected of them in the new world - they've been launched along the 'change curve':
"...the top management of banks... need to operate within limits. They need to be willing, like the regulator, to recognise that there are some profitable activities so unlikely to have a social benefit, direct or indirect, that they should voluntarily walk away from them. They need to ask searching questions about whether the complex structured products they sold to corporate and institutional customers, truly did deliver real hedging value or simply encouraged those institutions into speculative and risky exposures which they did not understand: and, if the latter, they should not sell them even if they are profitable. They need to be willing to accept the capital and other requirements which will be imposed on activities of little value and considerable risk, rather than deploy lobbying power to argue against such constraints on the basis of a simplistic assertion that all innovation is always valuable."
Another way to explain is to imagine what activity we would see more of, if we were filming a world where the proposed change had occurred, versus what we would see less of. This was a useful tool for change management we used at GE, designed to harnessing the power of suggestion in a positive way. Never say 'Don't...', without saying 'Do...'.

Monday, 28 September 2009

Why She Buys

Interesting tips from a book Why She Buys, by Bridget Brennan, posted on the Amazon Payments blog:
  • don't hide your customer service number

  • simple checkout process

  • use trusted payment methods, confirm orders/shipment immediately by email

  • have a decent returns policy

  • recommend complementary items

  • show examples of gifts

  • allow zoom on product shots

  • keep your site clutter-free

  • be transparent about shipping costs
Reminds me of some research that challenged the idea that women aren't comfortable with technology. As others have pointed out that, sure it should be stylish, but it also has to work simply. That means minimising the need for instructions and cables like spaghetti.

Intel also found that women are very influential when it comes to the gadgets guys buy, and even spend more time online gaming than young men.

Oh, and check out GeekSugar, 'where geek is chic'. Hat-tip to AllWomensWeekend.

Wednesday, 23 September 2009

FSA Chairman Shocks City Along Change Curve

Lord Turner has reiterated his assertion that much activity in the City is ‘socially useless' and 'of no real use to humanity’. Why? Because he knows it draws blood:
'Quite honestly I am appalled, disgusted, ashamed and hugely embarrassed that I should have lived to see someone supposed to be held in high esteem and who already commands a senior and crucially important position as effective head of the UK regulatory regime making such damaging and damning remarks.' Howard Wheeldon, senior strategist, BGC Partners, 27 August 2009.
And so it's clear that such remarks from the City's regulator are just the sort of shock the City needs to begin its journey along the curve towards the cultural change the taxpayer wants to see. The anger exhibited by Mr Wheeldon, a 30 year City veteran, is merely a step in that journey. The chart says 'Depression' is next, which may be right in more ways than one...

Tuesday, 22 September 2009

Gordo Got You Down? Try Power 2010!

If you aren't thoroughly disillusioned with UK politics and hell-bent on doing something about it, I don't know how much more mayhem it will take.

The good news is that even Gordon Brown admits he has to unwind his vast public sector binge of the past twelve years. The chips are really down.

But as the great HST himself said, "when the going gets tough, the weird turn pro".

So now is the time to ensure we get to keep and invest in what's important.

Enter Power 2010, a campaign chaired by Helena Kennedy and funded by the Joseph Rowntree Charitable Trust and the Joseph Rowntree Reform Trust.

Like MySociety, Power 2010 uses the internet to enable you to share your thoughts in a way that politicians cannot ignore without being called to public account. It doesn't matter whether Parliament is sitting or not. The internet is always on, 24-hours of disinfecting sunlight shining into the Westminster pit.

So please share your ideas now, at

Friday, 11 September 2009

Diversification Challenge

Some of us have been discussing the need to diversify more.

There are numerous tips on how to make sure that not all your eggs are in one basket. But they all assume that you have a great deal of time and a pretty sophisticated understanding of finance and financial services.

Like it or not, even with plenty of time on his/her hands, the 'man on the Clapham omnibus' is no financial giant.

So most people need diversification explained as simply as possible, and in a way that enables them to achieve it easily and conveniently.

What is diversification? The eggs in one basket idea is pretty simple, but needs some numbers: you are less likely to have all your eggs broken if you have 10 eggs in each of 10 baskets, rather than 100 eggs in one basket. Following this principle, you become automatically better off every time you add another basket for the same number of eggs. So you’d be much better protected against egg breakage if you had 5 eggs in each of 20 different baskets.

An interesting challenge would be to start with what a truly diversified portfolio of assets looks like, based on using a small amount of money. For argument's sake, one could start with a figure of £10,680 - the most the government allows you to salt away without locking it up til you're 98 years old, or paying tax on the returns.

But such government policy actually prohibits diversification, yet heavily subsidises regulated investments at the expense of alternatives.

That’s because most people with surplus cash should use up their tax-free allowances first, and few will have anything left over. Research cited by the Guardian in June 2011 suggests the average UK person can afford to save £97.10 per month.

The list of asset classes is long, yet the money allocated to those tax-free allowances can't be invested in the full range of potential assets, even by putting their money in the hands of managers who can invest more widely. Generally, you may only invest your tax-free allowances in regulated investments. And all sorts of rules, policies and other restrictions limit the types of assets in which regulated fund managers can invest. So even regulated fund managers are unable to adequately diversify the investment pots they manage. This must necessarily affect the value and performance of the funds they manage. Such effects may be market-driven and/or behavioural.

Then there's the tricky subject of asset correlations: if all the assets you've invested in behave the same way at the same time, then you aren't diversified. Apparently the correlation in the performance of assets has been increasing of late, but may be about to unwind in some cases.

First step along the way to meeting the diversification challenge should be to figure out a reasonably detailed list of asset classes. Then we should modify the regulatory framework to enable people to invest at least their tax free allowance in each of them. The list of assets can divide and divide, but I don't think we start out with a sufficiently granular picture. In reality, I think such a list might look like the following - note that I include different types of 'funds', and separate regulated from unregulated, because their performance can be affected by the differing levels of regulation and permitted classes of investments they can make. However, I'm not including instruments like spread bets, contracts for differences or futures, since these are merely contracts that get you exposure to the various assets. Am I right or wrong?

  1. cash
  2. savings accounts
  3. fixed interest savings/bonds - government, corporate
  4. person-to-person loans
  5. shares listed on a regulated or 'recognised' exchange
  6. shares not listed on a regulated exchange
  7. exchange traded funds (ETFs) listed on a regulated exchange
  8. ETFs not listed on a regulated exchange
  9. regulated managed funds
  10. unregulated managed funds
  11. regulated hedge funds
  12. unregulated hedge funds
  13. venture capital funds
  14. venture capital trusts
  15. regulated funds of funds
  16. unregulated funds of funds
  17. commercial property
  18. rural property
  19. residential property (owner occupied)
  20. residential property (buy-to-let)
  21. perishable commodities (e.g. cocoa, wheat)
  22. non-perishable commodities (e.g. oil, gold and other precious metals)
  23. art
  24. classic cars
  25. fine wine
  26. currencies

Tuesday, 8 September 2009

At Last A Bank That's Fair?

At long last one bank has broken ranks with the gang that's trying to avoid having their overdraft fees assessed for fairness by the OFT.

RBS has announced it will halve its fee for paying an item when overdrawn to £15 per day(!), and slash the fee for returning a cheque, direct debit or standing order to £5 (from £38!).

Why it's taken so long to at least make this concession, and why other UK banks with substantial state ownership continue to delay, is anyone's guess. But it's a great start.

Will RBS now refund to affected customers the difference between the revised fees and what it has been charging them to date?

Monday, 7 September 2009

New Firms Best At Leveraging Social Media?

A hat tip to Mark Nepstad for pointing out Chris Perry's article on the challenge for any established business trying to leverage the social media. Just as the military potential of the aeroplane was not fully realised until the challenge was eventually handed over by the Army to a newly created Air Force, Chris suggests that marketing teams need to be re-engineered in order for businesses to realise the potential afforded by a phenomenon as 'revolutinary' as the social media.

But this misses the wood for the trees.

The rise of the Air Force and the success of Google, eBay, Amazon etc. illustrate that leveraging horizontal technological innovations is not achieved by shuffling the deckchairs in the marketing department of established organisations, but by forging new and separate businesses.

That leaves the challenge for the old guard to engage with the upstarts in order to leverage their greater success with the new technology. Time Warner (AOL), NewsCorp (MySpace) and even eBay (Skype) have famously demonstrated that acquiring one of these new firms doesn't necessarily result in successful engagement. So it seems that established businesses should both encourage new businesses to flourish around significant new horizontal innovations, and focus on co-operating with them to serve their customers, rather than outright ownership. Some, including the Wharton Business School, have called this 'coopetition'.

Figuring out how to compete by co-operating shouldn't necessarily entail wholesale reorganisation, especially when deep knowledge of the capabilities and shortcomings of your own business is key to knowing what's needed from the other party. Indeed it might be more beneficial to give managers and staff 'permission' to admit their organisation's shortcomings and figure out where they need help to adequately serve their customers, rather than to drive the organisation through complex wholesale change programmes.

At any rate, the scale of the challenge posed by horizontal technological shifts may at least partly explain why the average lifespan of a major western corporation is 40-50 years...

Friday, 4 September 2009

Madoff Victims Should Not Blame The SEC

Something caught my eye in the FT's coverage of the SEC's inspector-general's report into the SEC's handling of the Madoff saga:
"Jacob Frenkel, an attorney with Shulman Rogers, said the report indicated that some SEC staff, “failed to recognise a blazing fire because they were too focused on the smoldering match in their fingertips.... Madoff investors would have been better off and far more skeptical had the SEC never investigated or conducted examinations.”"
While the SEC has a lot of improvements to make, Mr Frenkel's claim just doesn't stack up. Worse, blaming the SEC will mean that Madoff's victims will continue to behave in the way that got them into trouble in the first place.

In my book, victims really only have themselves and Madoff himself to blame, on three counts.

Firstly, the complaints to the SEC only reflect what was being published by the likes of Michael Ocrant in 2001. Harry Markopolos said it took him four hours to spot the Ponzi scheme in 2000, using publicly available documents. And according to the Telegraph, Goldman Sachs banned its asset management and brokering divisions from dealing with Madoff's funds ten years ago, while "a raft of blue-chip financial institutions have suspected something was wrong for years." So there's no reason that Madoff's victims and their advisors should not have detected these concerns with even a little due diligence.

Secondly, from my own observation of the SEC's approach to potentially wrongful activity (e.g. in relation to it's obvious that it can take several years for the SEC's enforcement machine to engage and eventually produce a settlement or prosecution. And, of course, such proceedings are subject to the usual vagaries of the appeals process (sustaining the doubt about whether viatical settlements are a security, for example, which has in turn left the status of other instruments unclear). While this is hugely frustrating for investors and competitors alike, it is clearly impossible to draw any conclusion from the fact that the SEC may have investigated something, unless and until the SEC issues a 'no action' letter (which can take a year, no joke), or ensuing proceedings are settled or otherwise concluded. So those who bet on the outcome of existing or potential SEC activity do so at their own risk. And clearly many people do make those bets.

Finally, what really seemed to cause Madoff's victims to invest was the bandwagon effect created by Madoff's skilful recruitment of socialites and other high profile names as key investors. This meant that investing with Madoff was more of a social badge than a financial decision. And that is hardly something that the SEC can be expected to do much about.

Social Networks No Playground For Bullies

Interesting post by Yasmin Joomraty on 'cyber-bullying', arising from the Keely Houghton case.

It seems clear from this case and other instances I've heard about that if someone resorts to cyber-bullying it's just the tip of the iceberg. So 'cyber-bullying' doesn't really exist as some kind of distinct evil in itself. Moreover, the bully's use of a social networking site is self-defeating, in that it arms the victim with the evidence needed to successfully fight back.

So cases like this are actually good PR for social networking services, just as, say, Betfair's standing was helped by the utility of its audit trail for those trying to clean up corruption in sport.

However, such illustrations of how evidence from online services actually helps with the detection and prosecution of crime also suggest we need to remain vigilant against the potential for the abuse of civil liberties, privacy, personal data and so on when it comes to the access and use of online data by the authorities and others.

Wednesday, 2 September 2009

Diversify More

Great to see a broader debate about where social lending sits in the banking and investment world (most recently summarised on Bankwatch).

It would indeed be very helpful if people could deduct their social lending fees/losses against their income tax, and lend money to each other via their ISAs. Some day common sense will prevail.

Of course, you can already lend money to people (who aren't related to you) via your Self-invested Personal Pension plan with the trustee's consent. I explored that in some detail in 2007 while General Counsel of Zopa, and even obtained FSA authorisation for Zopa to introduce people to a dedicated 'mini-SIPP' that was to be issued by a SIPP-provider exclusively for lending money via Zopa.

On that basis, there's no reason you shouldn't be able to lend money to others through a 'DIY' ISA or stocks/shares component of your normal ISA, especially where the administration and audit-trail is outsourced to a social lending platform such as Zopa (currently the only one in the UK).

But let's go further.

The artificial distinctions between the various investment 'channels' merely confuse the issue of how diversified you really are, and create a needless multiplicity of intermediaries who all have to take their cut from our money. We know what it means not to put “all your eggs in one basket”, but struggle to see or understand the “eggs” and the “basket”, and unwittingly hemorrhage returns in fees and commission.

Consider that you can invest your money in exactly the same managed investment funds directly, as well as via a tax-free 'wrapper' such as an ISA, pension and/or child trust fund. And if your corporate pension is managed as opaquely as mine are, then you have no idea whether your corporate pension trustee has your pension money invested in the same funds you hold via other 'channels'.

As I've pointed out previously, figuring out whether your 10, 20 or 30 different funds actually represent a diversified portfolio, or ultimately all track each other, is no easy task. The existing product providers and IFAs can't really be expected to take a huge interest in your mish-mash of pension and non-pension, taxable and non-taxable investments (and let's not forget the mortgage albatross or any other liabilities you thought were assets). They tend to earn fees simply based on how much of your money they have 'under management'. So if your investments are scattered to the four winds, the revenue they earn from you is disproportionate to the work required to pull all the information together. In fact, it may not even be cost effective to pay the fees for an adviser to do a proper job.

While the FSA has reviewed retail distribution to try to resolve this issue, that review ignored any asset offered by a provider that the FSA doesn't regulate, including all consumer credit (and hence social lending via Zopa). The limited nature of the FSA's remit and resources prevent it from seeing the financial world holistically. Consider, too, that the FSA's own "MoneyMadeClear" website has different tabs for pensions, as opposed to savings and investments - when in both cases you're simply 'investing', and your money could end up in the same place through either channel.

As I've said before, we need a one-stop, low-cost service that allows you to track all your savings and investments, whether in or outside pensions, taxable or non-taxable; understand whether they're up, down or sideways; benchmark them against competing options; assess whether you are really diversified; avoid the pitfalls of transfer fees, dealing charges and other potentially hidden expenses; and cost-effectively trade your way out of any problems.

Remember, you are on your own: pay less, diversify more and be contrarian.

Tuesday, 1 September 2009

Plain Sailing Is Not Plain English

Just spent a windy week on Mardy Gras at Dartmouth Royal Regatta, helping a friend celebrate a 'significant birthday' with some former crewmates, under the name "X-Pistols". Through fair weather and foul we managed a creditable 10th out of 19 in the IRC 3 class, even with me scrambling around amongst the winches. Huge thanks for the extremely generous hospitality (Fingals is well worth a visit), patient child-minding and tutelage in all things nautical, including:

While I enjoyed the experience immensely, I confess that it's a bit of a challenge getting this post written with only a keyboard to steady the constant swaying of everything around me.

And it's somewhat of a relief to return to the ordinary usage of 'sheet', 'guy', 'kicker', 'winch', 'car', 'tack', 'gibe', 'kite', 'rail', 'head', 'boom', 'pole', 'header', 'knock', 'tail' and, last but by no means least, 'grind'.

Fortunately, I did not have to learn first hand the alternate meaning of either 'broach' or the dreaded 'Chinese gibe', which I'm assured is far worse than a taunt from a gentleman of the Far East.
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