Journalist heroes 2

Journalist heroes 2

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This week I’d like to highlight the contribution made to the world of personal finance journalism by someone who, despite having retired in 2012 after 25 years’ service, continues to contribute to the financial planning profession via her work on a committee at our professional body.

Janet Walford is undoubtedly best known for her time as editor of Money Management magazine, published by the Financial Times group.  It might be hard for some of us to appreciate now but back in the 1980s and early 1990s, before the internet was as pervasive as it is today, we actually had to read physical publications for much of our news.  Such publications also carried research articles.

One of the early attempts to impose some degree of standardisation across the retail financial services world was a requirement that product providers use specific growth rates in their projections of future returns from investments.  Such rates were set according to what, at the time, seemed reasonable future expectations.  While it is true that these growth rates have reduced over time (in the late 1980s, I recall pensions being projected at annual rates of up to 13% before inflation, compared to the current maximum of 8%), they took no account of the underlying assets in the investment.  Consequently, the projected return for a cash fund inside a pension scheme would be identical to that for an emerging markets equity fund in the same wrapper.  While professional advisers might, we hope, have appreciated that this may be an unrealistic expectation, whether the same was true of consumers buying direct is a different matter.

A further issue with the early projections was that since every provider had to use the same rates for comparable products, the projections were of limited value when comparing providers with each other.  This was particularly the case because providers were prohibited from using their own charges in such projections.  Instead, all providers used a standardised set of assumptions for costs, regardless of how closely these assumptions matched their own.  It did not require an intellectual giant to work out that this would flatter the attractiveness of a company with high costs and have the opposite effect on one with low costs.  Since at the time, cost disclosure was something confined to the small print of policy terms and conditions, it requires a motivated and mathematically literate individual to extract from these documents what the actual costs were.

Fortunately for the readers of Money Management (and, I believe, for consumers as a whole), Janet felt that this was a state of affairs in need of some transparency.  She therefore resolved to publish, on an annual basis, a feature article containing extensive data tables which projected the fund values for a large number of personal pension providers which used their own charges.  Each survey covered both regular and single contributions (at the time, these could have radically different charging structures) and showed protected values over several different time periods.  Since the financial services regulations of the day provided an exemption from some of the rules for journalists, publishing this data was permitted.

In most cases, the providers (all of whom already knew what their charges were) were willing to provide projections on the requested basis for inclusion in the survey.  Inevitably however, there were those which declined to do so; we could only surmise their motivations for this, given that their projections did not appear.  Since most if not all of those companies distributed their products direct to the public rather than via independent advisers, this would have little impact on the selection process employed by such advisers.

However, the good people at Money Management recognised that even where products were distributed direct to the public, those investors who purchased them might be interested to know how they compared with those of other providers.  After a couple of years therefore, Money Management hired an independent actuary to help.  He would calculate, from the raw data contained in providers’ policy documents, the impact of those costs for the same parameters used in the survey.  This freed the author of the article (which was Janet herself in most of the years I remember seeing it) from the constraint of requiring consent from the recalcitrant providers and therefore provided a more comprehensive picture.

Once the actuary’s projected numbers were published as part of the next survey, it became apparent why those providers might have been so reluctant previously.  The survey now revealed, in explicit detail, just how uncompetitively expensive some of those providers were, across a range of contributions and time periods.  In particular, I remember one provider which offered absolutely no transfer value for the first five years of a regular contribution pension scheme.  To see a line of zeros across the page when other providers offered considerably higher values made it brutally apparent that some companies offered better value for money than others.

Although it took several more years than was probably desirable, eventually the UK regulator accepted that showing consumers projections which were based on the actual costs of the provider might be rather more useful to encourage competition and therefore to bring down costs.  It also recognised that varying the assumed growth rate according to the nature of the underlying assets might provide a less misleading picture of the impact which the selected investment strategy would have on the outcome.

Janet led the way in other ways too.  Back in 1996, the then regulator introduced a requirement for those giving advice to have at least a basic qualification.  While it may seem astonishing that until then, qualifications were voluntary, and there was no requirement for non-advisers to hold them, Janet decided to sit the exam herself.  Her rationale was that as a journalist whose role might well entail being critical of some advisers, it would be as well to deprive the subjects of such criticism of the defence that “it’s all very well for you but journalists don’t need to have the qualifications and knowledge that I do.”  While the academic standard may not have been terribly high (something addressed only at the end of 2012, when the outcomes of the Retail Distribution Review were implemented), there were certainly some experienced advisers who failed it despite financial advice being their actual job.  I imagine that for a non-practitioner it would have been more difficult but, unsurprisingly, Janet passed it anyway.

Finally, I would like to mention one of the major contributions which Janet and Money Management made to the encouragement of high-quality financial advice.  While my memory fails me as to when it started (around 1994, I believe), the annual Financial Planner of the Year competition was a highlight for those advisers who were keen to demonstrate their abilities at actual financial planning.  This was at a time when there was a plethora of finance awards but almost none recognised the ability to construct a coherent financial plan.

At the time, the Financial Planner of the Year awards covered up to a dozen categories, each of which had a case study which outlined a client scenario, some aspect of which related to the category name.  Candidates had a couple of months to write and submit their solutions, which were then blind judged by two current or former practitioners.  The two highest-scoring candidates in each category were invited for a half-hour face-to-face interview which determined the winner and runner-up for each category.  Those who felt particularly ambitious would enter three or more categories in the hope of winning the overall award, which demonstrated capability across a range of aspects of planning.

From experience, the process of researching and writing the case study solutions was extremely valuable in terms of enhancing knowledge and skills, even if the interviews themselves could be somewhat gruelling.  Having been fortunate enough to have some success in individual categories (my colleague Carolyn Gowen also won the overall award once), I can say that it remains one of the most worthwhile and valuable awards I have entered.  It was once described on the BBC programme ‘Panorama’ as the financial services equivalent of the Oscars and the list of category and overall winners reads like a Who’s Who of the financial planning profession at the time.

It is pleasing to report that such a significant contribution to her chosen profession did not go unrecognised outside it and in 2007 Janet was awarded an OBE in the Queen’s birthday honours list.  As she said at the time, “people in my role don’t normally get these things” but there are many who, even unknowingly, owe her a lot for her contribution to making the retail financial services landscape a better place than it was when she joined it.