Weekend reading: How could the financial services sector better cater for the likes of us?

With the advent of big data, that seems to be accumulated about us all, you would think that (for banks) assessing the risk of an individual would be an easier task than the simple profiles gathered by the forms for a mortgage. A brief glimpse into your social media profiles, your browser history or your circle of friends could yield a better risk profile than you could ever glean from a form where a mis-truth could be written. Credit check companies seem to look at history. “Past performance is no indicator of future returns” yet the industry seems to regard you in a better light if you are constantly in debt and pay it with monotonous regularity.
I think the banks need to wake up to the opportunity. The only question being, “do you mind if our A.I. looks into your online activities?” I’m sure @TI, that a mortgage would have been forthcoming with a little more intelligence if the banks could only be bothered.
It worries me that being nearly a decade without any debt will have crippled my credit rating. A better approach to this would be welcome BUT it needs to be optional.
Jim

@JimJim
That is sort of what I do for a living but not in the FS sector, in the CPG sector.
I have though done multiple sales pitches and lectures in the FS sector (bother here and some of the large investor relationship bans in the US) and they aren’t really into anything but known data.
However, tieing together known profile date and unknown cookie (browsing) behaviour will rise to incorrect profiling of a customer. (and that now starts to fall foul of various in country laws – Germany being the worse)
I do buy browsing behaviour (well not actual line item behaviour but more you are a member of various tribes) and if I have the given data against that browser (or router) I can sort of attribute it. We go a bit further and look at shared devices (ie the youngest daughter has it just after tea and then the father takes over etc) we also look at browsing behaviour across devices. (again in some countries – ie Germany this is fraught with legal implications on implicitly tieing data to a consumer).
What we can do is this.
You sign up to a website, a industry wide cookie gets landed along with your customer number inside the cookie.
We can then harvest the data you have given us against your known customer profile.
Against the cookie we can then buy browsing behaviour via tribes (from numerous sources including Nielsen), we can buy real time geo coordinates from apps, as well as household income (you known those free credit check scores you do, well we can buy that and allocate it to the industry wide cookie). We can also track you in our websites moving from one device to another and tie in your multiple cookie identities.
We can then tie together your known and bought in cookie data (as well as the interactions you did on our websites – stopped a video, stayed for 10 seconds on a page, muted the sound, scrolled down, came from a referral website).
In the end you become part of multiple segments which we can then buy adverts against or personalise your content.
In addition as most web sites are moving to social logins (login via facebook/google etc), we do harvest social media data from all over the place, but that is purely for market research and we tend not to link it to customer profile data. The additional data we can buy from social is quite good (geo coordinates, influencer rating etc) but we tend to use this , again, for market research
The base tech and analytical capabilities are quite easy to install, you will get change from £10m for a very very large customer base. The problem then is one of how quick and do you have the Data Science capability to build it. The last one is probably the killer as Google and Facebook are hoovering up talent at prices I cannot afford. (Google engineering team leads are upwards of six figures! In old school, that’s a programming team leader covering 6 programmers for £1.25m!!!)
An aside there – I work probably in the biggest global platform doing this outside of the sneaky beakies – so there it is from the horses mouth not sensationalist media coverage.

At the start of the year I tried to buy a gold ETC for the Junior ISAs my two children have, only for the system to reject the order since it was a “complex product”!

ISAs and SIPPs have become so restricted over the last decade in terms of what you can/cannot invest in. The need for factors such as “reporting status” on S&S ISA investments is unnecessary. The panoply of regulatory crap from UCITS through to MIFID2 just adds costs for zero upside.

So I’d like to see a “No tears” clause added to retail products like SIPPs and ISAs. I’d happily lose my all my regulatory protections to gain total product flexibility and lower cost.

Just reading https://www.theguardian.com/money/2019/sep/14/uk-pension-annuities-under-threat-as-rates-plummet – a little light reading on a Saturday night 😉

Commenter Stra3enkater says:
“Do some background research, eg Monevator for a starting point.”
You’re famous!

Good challenge, TI. At Nutmeg we try to be the genie making smart investors’ wishes come true, so it is very useful to see threads like this… If anybody wants a chance to provide input even more directly we run regular focus groups in London – email grant @ nutmeg dot com to get a place.

As an alternative to bonds/bond funds I’d like to be able to hold fixed term cash deposits within a low cost SIPP (preferably via the SIPP provider I have now) that pay rates comparable with a Cash ISA e.g. 1.5% for a 1 year term, vs 0.5% for 10 year gilt.

> yet the industry seems to regard you in a better light if you are constantly in debt and pay it with monotonous regularity.

It really does. I’ve never used debt before but recently bought a used car half on finance, mostly to see what the effect would be on my credit. Spoiler: it went up, and presumably will go back down when I pay the thing off. 20 years paying rent every month does nothing, but get yerself some genuine debt and your “score” goes up. It has nothing to do with creditworthiness (ability to repay) and everything to do with being in debt indefinitely.

@John – Yep! I don’t know how it would work, but that is a dream product for me!

I would like better access to fixed fee financial planning, where I can pay for a review based on a reasonable hourly rate with no expectation that I will hand over my investments to be managed. Something more like the local solicitor.

@old eyes, I expect you may have considered this, but have you taken advice about how you can ring fence assets for your son (using a trust)? Once you have made provision for him then you have more idea how much you have left for your own care. I know this is looking at it from the other way round – identify what is needed for your son and then the remainder goes on care if needed, rather than what you want which is to identify the care costs and then leave the remainder. But it would presumably have the merit of protecting the funds your son needs.

I haven’t had a loan or mortgage for a few decades. I fully pay off my (one) credit card every month. My credit score is 999. It simply ain’t true that you need loans to get a good score. OTOH, my “salary” is non-existent, and I agree that is a problem when completing forms (eg for a new bank account). Companies’ internal vetting processes are often to blame, not the credit score industry.

@Vanguardfan

Thanks. Yes, we are looking at a trust as we update our wills. It is made slightly more complicated by the fact that there are special rules for money left in trust for a disabled or otherwise vulnerable person, but nobody seems to be clear on whether Asperger’s and other autistic spectrum conditions counts, or how you would get a clear ruling.

I am sure we will eventually find an answer.

On your other point on fixed fee financial planning, I have used IFA’s four times and each time agreed a fixed fee. So far, I have always found someone willing to do it as I make it clear that they are not going to get their hands on my portfolio to manage, and the choice is between a fee for advice or nothing. I have always provided a briefing document stating assets, liabilities, lifestyle and what it is I need to know, so the meetings have always been short and sweet, and I hope mutually satisfactory. I use them to check my thinking and my workings. Once when I first started with ISA’s (AM – Ante-Monevator) and I wanted to be clear on the rules and ask some questions about how trackers worked. Once setting up a pension when I started a business, and twice with specific pension issues to do with early retirement, lifetime allowance, changing tax rules and so on.

I did have one IFA, who took over the business from someone I had successfully used before, that went into full sales mode offering free advice now in exchange for a 2% annual fee to cover all management costs. As he pointed out, I would never be able to get the fees lower than that doing it myself as he could negotiate the best rates and knew all the best deals. This was after explaining that my preference and current portfolio was almost entirely passive.

I couldn’t help myself, I laughed out loud. He deserved no better.

Us millenials are getting older you know, starting to knock on the door of 40.

I took great pleasure pointing out to my (millennial) (possibly now ex) friend that he was born closer to the end of WW2 than to today.

And I’m grumpy cos I remember when we were called generation Y, and I’m also grumpy because websites aren’t like they were in the 90s, and my phone battery doesn’t last a week anymore, and I don’t like facebook, and I prefer real ale to ‘craft’ beer, is that ‘millennial’ enough for you? Now get off my lawn. 🙂

It is possible to buy a fixed term annuity. But perhaps the easiest and most cost effective approach would be to make your own, by buying a ‘ladder’ of gilts. These would have maturity dates for each year you wanted to cover, and at point of purchase you would know the redemption value. I think it comes as close to a risk free option as there is.

@MoMo
Perhaps in the era of very low interest rates the simplest way to get from now to drawing a pension, is to set aside the amount of pension you will receive per month multiplied by no of months until the pension is due, in a secure savings account, something like NS&I Income Bond’s .

When you retire early and you need to consider the sequence of returns risk, I would suggest a substantial cash buffer is more appropriate than insurance.

There is a potential danger with I will FIRE with a drawdown rate of 4% a month and events occur ….

I would suggest that the approach of I can live comfortably with a drawdown rate of 2% and live very well on 4% is much more likely to succeed, the drawback is needing more money saved/invested…..

I think Jimjim’s original idea was that the bank would *ask* to access his data, for a specific purpose. Surely that is a bit different from taking people’s data without their explicit consent, for use for purposes they might not be aware of or agree with.
And it’s this that seems to have got out of hand – no doubt prompting the German legislation. We do now get asked about cookies etc. at times when clicking on things (usual message “we care about your privacy” = “we are going to invade your privacy for profit/political gain”). It’s just not realistic, in terms of swift and extensive way we use the internet, to think that there is a real awareness of what we are consenting to – I think most people would be surprised at the personal, micro nature of the data collected on them and the way it is being used.
It’s not just an invasion if privacy. It’s now a threat to elections, as the investigations of the UK Parliament’s Digital, Culture, Media and Sport Committee revealed.
So – AI and big data may be helpful in developing financial products. But perhaps this kind of data harvesting needs to be regulated and require explicit informed consent.

@RS

What would you like them to do? It seems churlish to reject a company that is asking for your opinions, how are they supposed to know what you want?

Plus I’d expect some form of compensation, that’s the way it normally works.