Turn the Machines Back On!

Up-date: today (28/9), it appears the HSBC mobile app has gone down. Ho hum.

“We are looking at a society increasingly dependent on machines, yet decreasingly capable of making or even using them effectively.” ― Douglas Rushkoff, Program or Be Programmed: Ten Commands for a Digital Age

We live in an age of increased reliance on Technology in our personal and professional lives and yet, they seem to be creating more and more problems as they get more complex. As it gets more complex, it appears to be getting more fragile – not a day seems to go by without stories emerging of another “glitch” (which appears to have become Corporate speak for major system collapse), leaving customers in the lurch [1]. RBS Group (which includes RBS, Ulster Bank and Natwest) saw its online systems crash in unison last week, leaving millions of customers unable to access their accounts or pay bills for nearly half a day, with Barclays suffering a similar fate on their website and telephone banking systems, the UK Treasury Select Committee has now asked the two firms to explain themselves, accusing them of a “litany” of failures. But the granddaddy of all IT disasters occurred earlier in the year, (April) when TSB decided to “migrate” their customer records from its former parent company to its new owner – the consequence was that 1.9 million customers’ accounts were frozen, resulting in financial losses, stress and enormous inconvenience, which persisted for months. Cue the usual ritual apologies, warm words, platitudes and assurances that it will all be fixed soon (but it wasn’t). It cost the bank around £176 million, though the Chief Executive subsequently left with around £1.6 million in HIS account.

It is scant consolation to those affected, but it is not confined to Blighty – in just 3 days last week, stories emerged of snafus at the UN, Delta Airlines was forced to cancel a number of flights, whilst Verizon has seen a massive service “outage” across their US network. Earlier this year, ANZ Bank and VISA customers were also hit by failures in their systems; it can’t ALL be the North Korean’s fault!

All of these incidents involve the Banks and why this is happening is not hard to divine – Banking appears to be becoming a “no-growth” industry, where the vast majority of their customers do not trust them one inch. Thus there is little opportunity to gain market share (except by potentially expensive gimmicks, such as money to switch accounts etc.). The only way to thrive therefore is to pare costs to the bone, which is what they seem to have done. The quickest (and easiest) way to do that from a Senior Executive’s perspective (assuming that all the Bank’s counter staff have been “streamlined”) is to put off ALL expenditure on Technology and hope that nothing breaks on their watch. They do not seem to think that IT is important to their competitive position and thus systematically underinvest in it – to the point of sacking their IT staff! Thus they now have antediluvian, accident-prone legacy systems, which are increasingly creaky – it is no coincidence that problems at TSB, RBS, and Barclays all involved system up-grades (of one form or another). The resulting fiascoes are not likely to encourage other banks to do the same. Meanwhile, ALL the Banks are closing branches at a furious rate, (citing the growth of Internet Banking for their decisions), leaving customers in a no-win situation. What on earth could happen if the much-feared “disorderly” Brexit occurs next March?

Closer to EBI’s home, there are regular problems emerging in Financial service land – Aegon announced (last week!) that it had sorted out its IT issues (emanating from it’s decision to merge its in-house Investment platform with Cofunds in May, (too late to save the job of the Head of its IT department), but on the same day, Aviva announced that advisors were unable to use its pension transfer quoting tool, as a result of a system upgrade (which clearly went swimmingly!).

All of this underscores the fact that Due Diligence is required not just for funds and fund managers but for the Platforms that investors use – it is of no benefit if the investor cannot access their money! This is why we perform DD (login required) on fund Platforms as well as the fund management firms we use – system integrity is almost as important as anything else in investment. Most (c.85% ) of our Vantage client assets are held on Transact and Wealthtime, in which we have a high degree of confidence (though this is, of course, tempting fate!) because they have thus far demonstrated a strong commitment to maintaining their capital expenditures – Defaqto have given both Wealthtime and Transact a Five Star rating, which while no guarantee of stability, is a good base from which to work.

This is going to become an increasingly important part of our work going forward; investors may have to get used to paying as much attention to their systems as to their investments – while markets can be (largely) left to sort themselves out, a more proactive stance on Platform DD may have to become an increasing feature of investor’s working lives, as return of capital could become as important as the return on capital. Let’s hope we never have to face the choice between them.

[1] These problems are by no means new- the Guardian compiled a list (in 2015), which only goes back 3 years, but which was disturbingly lengthy.