Your pension fund is worth almost nothing? Find out why. | Dr. Christopher Sier | TEDxOxBridge

ignore Maya my glamorous assistants here don't worry about them it's my job I'm their father will come to them in due course right can I see the audience I can who here is looking for a job come on you will MBA students or most of you are hands up who is looking for a job in financial services or has a job in financial services don't be frightened don't be shy I'm gonna put my hand up as well I have one okay so financial services why financial services I mean I was in your position 14 years ago because I went to a certain well-known business school whose name really can't be mentioned on stage given the fact we're in Cambridge so thank you for loaning you have come here Cambridge to speak but why financial services why do you want to be in financial services why did I want to be in financial services well bluntly at the time it was about the money so who else here is of the belief or is interested in the money that exists in financial services again don't be shy I was interested in it so the money people go there because there's a lot of is this me that's making this noise nope you want to go there because there's money in financial services but how much so you think about financial services you think about Investment Banking you think about the role of financial services and what you start to think of investment banking salaries well let me tell you that Investment Banking salaries are not really where it's at currently Investment Banking is going through a slump jobs in Investment Banking are pretty few and far between the whole M&A cycle is going through a a dip so if you want to have a job in financial services in Investment Banking yes you will have a good job that pays well but you only have it for three to five years because every three to five years there's a hiring freeze and a firing a massive firing if you want to have a job in financial services can I recommend asset management so let me ask you a question how much do you think on average a broker investment banker is paid if you look at the total compensation pool of a financial services firm and divide it by the total number of employees who thinks the salary of an investment banker is in excess on average across all those people including secretaries support staff catering is more than a hundred thousand pounds anyone more than a hundred thousand pounds with bonuses okay not not big equity bonuses just cash bonuses so more than hundred thousand pounds he thinks it's more than one hundred and fifty thousand pounds anyone on average across all the whole of the investment bank who thinks it's more than 180,000 pounds hardly anyone it is about a hundred eighty thousand pounds across the whole of this whole of the portfolio of jobs that you can have in the investment bank let me tell you that asset managers earn two hundred and twenty five thousand pounds on average and they don't fire so top tip if you're interested in money and in having that money over an extended period of time work for an asset manager because they don't fire so I had a lot of things I have a good perspective on earnings in different sectors and earnings in different places so I've been a researcher I have a PhD I've been a police officer as a police officer for seven years I was a financial analyst being a part of the consulting firm I've been the managing director of a global bank I'm now the managing director of a nonprofit organization looking at research into the sector and also incidentally and most recently and much the chagarin of a lot of people are now a professor I like that I like to call art to make sure that people I don't like have to call me professor it's quite cool and really it's there's no other role involved in it I don't have teach and don't have to do research but I get to call myself professor I sent an email out to some people I didn't like saying just so you know I haven't changed my email address you can still catch me at the same the same details the same phone number professor Christopher's here he it was great I got a lot of a Noctis replies back but it was a really good fun so that's just me so what made me think about this money you'd think that for all of that money two hundred and twenty five thousand pounds there'd be a lot of value add wouldn't you you'd think to be paid two hundred twenty-five thousand pounds there would be significant value add let me give you a little case study I went from being a police officer to being a financial analyst when I was a police sergeant in Edinburgh I had full responsibility life death care of about 50 police officers and vicarious responsibility of something like a hundred two hundred and fifty thousand people I was paid twenty-five thousand pounds a year to do this I left the police moved to London got a job with an investment bank and within two months I paid forty thousand pounds for shuffling pieces of paper around and checking two columns of numbers actually it was a job that actually either Rosie or Eric could have done as well it really was no more than comparing two columns and numbers and I was paid forty thousand pounds plus bonus for doing this I could not understand why and I still can't so it got me asking some questions where is the value because if 225,000 pounds is what an asset manager is paid 185 thousand pounds is what a broker is paid the oil and gas sector if you do the same numbers and it done some research on this is about one hundred and fifty thousand pounds the automotive sector is one hundred thousand pounds the retail sector Tesco's Waitrose about thirty thousand pounds so they must add some significant value to give two hundred and twenty five thousand pounds and you would be wrong in that so I first started looking at this eight years ago and eight years ago I did a piece of research for biz and for the Treasury which looks at the cost to invest in a retail fund who here owns a nicer Isis think they're good value right Isis what is the headline cost of an icer it's about as expressed as a percentage of assets it's about one percent that's what you get told the research that I did showed that for an equity icer you probably pay in the round with implicit charges all kinds of other fees more like three to four and a half percent of assets this means that every year three to four and a half percent of your assets are eaten up by the intermediaries I'm going to give an example of that with the kids in a minute three to four and a half percent think about what that means in a market that you're investing in which has over the long term growth of no more than five percent that's the footsie four percent to 5 percent if that return is a middle eaten up by all of the intermediaries plus inflation you get zero return so it came as no surprise to me when I did my research that I found people who had been putting money in for a decade who had exactly the same amount of money in their funds as they put in less inflation it was unexplainable how could this happen and I got chastised heavily by the industry the financial services industry for putting this research out there was published in The Guardian it got leaked by somebody in the Treasury and that's fine that's fine and dandy I don't mind but what got me was when I was being shouted at by the industry for ruining a fragile savings culture they said something important to me why are you looking at the retail function financial management sector why it's the smallest part of the industry okay good there's a bigger price out there there's a bigger piece and that bigger piece is the pension fund industry and why is that important so really what I'm here to do is talk to you today about pension funds I bet you're excited now on you who here is a pension fund who here wants a pension fund okay so that pretty much covers all with you you need a pension fund but not as it exists currently I have a real problem with pension funds currently pension funds have a peculiar property to them pension funds life funds our savings have a peculiar property to them in the UK there are six to seven trillion pounds of savings out there in a pension fund or an institutional fund of some kind of rather how big is that number what's the market capitalization of the footsy anybody all listed equities in the UK the ownership of every single big company small company in the UK adds up to two and a half trillion pounds so we own all of that two and a half times over you you you me we own everything absolutely everything so if we're going to figure out this journey of understanding how this complex industry pays itself why it pays itself so much the justification for all of its cost and expense we want to look where most of this value lies and sadly that means pension fund that it means like people like I like myself have to get involved in what is our sensibly a very very deep and deeply dull and boring topic to almost everybody but is the most important topic that you will consider right now and for the next 25 years of your lives if you haven't sat down and looked to your pension fund and thought how does it work while I'm paying this how much they get paid and if your pension fund isn't performing you sit down and think to yourself why am i paying that person on average two hundred twenty-five thousand pounds per year I only own 40 then you are stupid just as I was stupid just as everybody was stupid you hasn't asked this questions and this is the curiosity part of my talk why are we not curious about this problem it's enormous in the States there are 30 to 40 trillion dollars worth of pension funds and yet the market capitalization of all the listed equities in the American markets is shy of 20 trillion again we own everything we own everything and we don't ask how this money is looked after and how its cared for why not it's because it's complex and it's because it's opaque so this is where the kids come in step forward please Rosie and Eric Eric come over this side please yeah come on give a round of applause I I was I was tempted so tempted to just let them walk out on stage and leave them hanging that would have been awesome right okay so I am Financial Services and I'm going to ask Eric here to give some money to Rosie through me Eric please would you give me the money turn around and face the other way please Rosie that's for you are you happy why are you happy because you've got some money right hey it's cool you had none to start with let's do that again face each other please face each other Eric he's give me the money again thank you there we go Rosie are you happy you sure what I took are you sure you want this yes I took half of it didn't I how do you feel about that you're not happy are you no you're not right there you go you can keep those two thank you over there the point here is omega C let's see if you can't always go forward scuffles is it as well as those five so the point here is that I took half of the money now you might think that's an exaggerated example it is not an exaggeration think about the impact of compounding stop playing with the money keep it put it in your pocket it's a gift it's job okay give it to your brother that's exactly what you need to do bribe him so this is exactly what happens an example I'm going to give you is with British home stores who knows the story of British home stores it's been in the press recently there's an inquiry out about the collapse of British home stores now regardless of the business model of British home stores it's an old-style retail firm in the UK which is always going to get out competed by the likes of Amazon and eBay and so on and so forth it still has assets of value in fact Philip Green sold it to the next buyer for one pound only and they bought it willingly they're trying to sell it for one pound now and no one wants to buy it you know why 207 million pounds with the liabilities on the pension fund do you know what I mean by that when I say 207 million pounds worth of shortfall and liabilities what I mean is that the future if you stop the pension fund right now and allow no more new members the total value and current present value terms come on who's doing Tim Morrison's course on Finance at this eye Business School the present value of all of those liabilities into the future in present value is 642 million pounds but there's only 435 million pounds in the pot they haven't got enough money by 207 billion pounds or 33% 33 percent of the assets have disappeared and you know that's not even in isolation that's not an isolated number area what was the piece of paper I gave you now it's a Times article take it out your pocket how many pension funds are there in the UK you can have it 6,000 how many of them this is because I can't have the numbers on the stage how many of them the second number how many of them have a shortfall in funding what is the total value of that shortfall 355 billion pounds people not 207 million three hundred and fifty five billion whose responsibility is that three hundred and fifty five billion shareholders happy if you're the government the government has one group of pension funds called the local government pension schemes it has 250 billion of assets under management it's got a short for the funding about 60 billion pounds so the government is on the hook for sixty billion pounds of the liabilities what is the national deficit currently 75 billion you can't escape from the fact that that sixty billion pounds of liabilities adds to the national deficit so George Osborne is not managing a seventy five billion pound deficit he's managing one hundred and forty billion pounds of deficit so you think what austerity is done to the UK in the past five years he's going to double it to be able to make up that shortfall happy I'm not happy so where does this money go how can we recoup it and this is the clever part if you don't know how much you're paying how can you manage your costs and this is the curiosity part this is the bit that gets me we live in a world where by we inquire there was a dialogue that we have for every purchasing with decision that we make which has costs at the center of it has anybody bought anything here anything here without first looking at the label really does everybody here look at the label when they buy things put your hands up you if you do everybody put your hands down because you're all wrong have you ever bought a financial services product without knowing what the proper cost was have you ever sat there in front of a financial adviser and said okay so fine there's this little cost here but what are the costs are they all don't worry about those they're negligible we suspend disbelief for all financial services products and they take us to the cleaners the total value for BHS british home skills my research shows me that pension funds routinely cost not the 30 basis points point 3 percent that they tell you and they cost or they tell the trustees they cost it's more like 2 percent so that's a factor of seven or eight larger than we expect and when no one ever asks any questions about this imagine if we could claw that back how quickly would we fill up two hundred and seven billion pounds I'll tell you about ten years by doing nothing more than negotiating on cost simple economics simple business practice you will MBA student when you get out there and negotiate on behalf of all the consumers please transparency and negotiation is pretty simple stuff thank you

Channel: TEDx Talks

Views: 36,496

Rating: 4.5208912 out of 5

Keywords: TEDxTalks, English, United Kingdom, Business, Finance, Investment

Id: GeEe8o_QfNA

Length: 16min 42sec (1002 seconds)

Published: Wed Jun 22 2016