In this conversation Geoff Towers, CEO of Pershing Limited, shares his concern that while the industry is adapted to keep the wheels turning in the face of the Coronavirus pandemic, we may later see cracks emerge that reveal that while things were working, they may not have been as safe and secure, as when we were all in the office. We talk about watching out for people around us and the importance of permissioning. Geoff makes a point of showing his team that he’s switching off at points in the day. We also cover foxes and hedgehogs. And be sure to listen to the end when Geoff shares his views on the potential for a period of rising prices, and perhaps even hyperinflation. We come full circle at the end as Geoff permissions business leaders to take idle moments and step away to think about how they need to prepare their businesses for the recovery.

You can listen to the full interview below.

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Transcription of conversation

Heather

Hi, this is Heather. Today you’re going to hear a conversation I recorded with Geoff towers. Geoff is CEO of Pershing and is hugely experienced in the wealth management industry. Previously, Geoff was head of platforms and distribution at L&G and before that, he was CEO of Standard Life Savings. Geoff shares is concerned that while the industry is adapted to keep the wheels turning in the face of the Coronavirus pandemic, in a few months’ time, he thinks that we may see cracks emerging that revealed that while things were working, they may not have been as safe and secure, as when we were all in the office working. We talked about watching out for people around us and the importance of permissioning. Geoff makes a point of showing his team that he’s switching off at points in the day. We also cover foxes and hedgehogs. And be sure to listen to the end when Geoff shares his views on the potential for a period of rising prices, and perhaps even inflation. We come full circle at the end is Geoff permissions business leaders to take idle moments and step away to think about how they need to prepare their businesses for their recovery. This is a fascinating conversation with someone who’s hugely experienced, thoughtful, and fun. I hope you enjoy listening as much as I enjoyed speaking with Geoff.

Geoff, welcome to next wealth insights. Thanks for joining us on the podcast.

Geoff

Hi, nice to be here.

Heather

Geoff, I think most of our listeners will be familiar with Pershing, but do you mind just introducing yourself and Pershing

Geoff

Yes, so I’m Geoff Towers and I’ve been in around the industry for quite a long time, most parts of the industry from running advisor businesses, through to Pershing and Pershing’s main job is to move money in securities and to hold them safe for our clients. So, we support platforms, but we also support wealth firms and advisory firms who want to come to us directly.

Heather

So, we’re talking in lockdown in what I think Bill Gates has said as the end of the beginning of the COVID-19 crisis. So how do you think that the wealth management industry has responded so far?

Geoff

I think there’s a huge range of responses. By and large, it’s very pleasing as to just how stable the industry is, if you think about it, how many of our business continuity plans or our disaster event planning said there’s going to be a pandemic, and you’re going to have to move everybody out of the office. And by the way, it’s probably going to be the most volatile market most of us have seen. And I think that fact that we might have all had sleepless nights and long days, but the fact that money in securities is in the right place, the clients can still get valuations, the clients can still speak to advisors. I think that’s a credit to the industry. And you know, really and truly, it’s pretty impressive given how fast everybody moved. Some got that as sooner rather than later. And some parts of the process are harder to move, we saw a number of our clients, especially in our Irish business, still want to send us cheques. The Irish economy is still very driven by cheques that requires you to have someone in the office to open the envelope and process those cheques. So certain elements, things perhaps that you always thought but the mundane and the end of the industry and didn’t spend much time have actually proven to be some of the more challenging parts of the process.

Heather

Yeah, absolutely. And I think that’s something that maybe people aren’t necessarily aware of at the moment that we’ve had a period of intense market volatility, trading volumes have been at the end of Q1 was the busiest time for most platforms, financial advice businesses. And the fact that we were able to adapt so quickly to remote working is a real credit. But this issue of cheques is so fascinating because I talked to him about it’s not just an Irish issue, I tell you, because platforms in the UK are receiving cheques. And when I talk to advisors about this, and well, we can only do bank transfers up to a certain amount so it’s the bank fault. But there are ways around it. And it’s really interesting, I was talking to an advisor last week who said that he had a couple they wanted to do their ISA investments, they had 40,000 pounds, and their bank had a max of 5,000. And he was really worried that with all of the news coming out on a daily basis about how the markets were moving, that they would get cold feet after a couple of days. And it was really important for their long-term financial plan to just stick with it. That was better for them to write a cheque for 40k, then do the transfer over a few days

Geoff

Better for them but a pain for those of us who have to find a way of securing, opening the envelope and banking that cheque. And by the way, still doing it with inside the cast the client money rules requirements, the clock doesn’t stop ticking, just because it’s harder to bank the cheque. But there’s other aspects. I mean, you probably know we also run a large and substantial trading desk, not only for collectives and mutual funds but for direct equities and fixed income and a lot of our wealth clients are very active in those lines.

So, we’ve moved our trading room, because trading rooms are very intense on top of each other. You know, if you want an environment to spread an infectious disease, a trading room is pretty up there. Narrow desks, lots of people shoehorned in, we’ve moved them to work from home. And we still kept the question of recording lines best execution. So, you know, I know one of my traders is trading from his utility room, complete with livestock outside the door and to do that and to meet industry regulation and rules and still do it and do it on the fly. Because it wasn’t like, well, we’ll take a month to get ready. And to put that in place and all the rest of it, that, yeah, we’re quite chuffed with that one. But there are all sorts of things we’ve never had to think about that we’ve had to deliver. And I’m sure other players are exactly the same. And I think one of the other things that people are getting frustrated about because, you know, everyone can always find a solution. Surely, it’s as simple as, and I think one of the things that talking about the industry response, you know, you still have to be extremely careful to make sure your processes and procedures are robust.

You have to be really clear that because this is a time when, you know, fraud risk is through the roof, because the fraudsters know that firms that are less prepared, will be making shortcuts and taking out procedures that they’re difficult to do when they work from home. It’s a perfect place for phishing or spear phishing, you know, the CEO ,CFO type email don’t come for the CEO or CFO that report to those sorts of control procedures is where I think we will see whether the industry really is got its outsourcing to work from home. got it right. I think we’ve yet to see just with the industries keeping the business going.

I am interested to know how secure the industry is managed to do that. You know, for example, I think Apple have refuted it but the SEC ops piece that said Apple Mail had a zero-day vulnerability in it that came out last week. I don’t know whether you saw that. But if you’re on if you’re an iOS person, and you punch that blue Apple mailbox, according to SEC ops, there are zero-day vulnerabilities on there. Did you know that? Did you spot it? Or did you just hope that yours wasn’t going to be compromised? And are you using Apple Mail where you used to use Office mail for smaller firms and for advisor firms? Yeah, that sort of extra layer of caution still needs to be there. And I do worry in this industry response that we might have, as an industry got things working, but we might not be as secure and safe as we were when we were in office working.

Heather

And does that apply evenly to different sizes of companies? Because one of the big questions for me is with such a fragmented financial advice market with its 89% of advice firms have five or fewer advisors and businesses. There’s a lot of small businesses feeding up into larger firms. Do you think that small businesses are as vulnerable to these things more vulnerable?

Geoff

At the starting point, they are more vulnerable. I guess they may be less on fraudsters radar, but you know fraudsters go look for the weaknesses not necessarily scale. Larger organisations, I mean, I know you know, what we do on cyber and the connectivity to various government agencies, because we are part of the Bank of New York Mellon and we are at bulk called it a G-SIFIP, a globally significant financial institution that comes with certain burdens, but it also comes with certain benefits.

So, we can draw on a wider list of security conversation. So, for example, when the SEC ops story came out, we were able to talk internally to people who had been talking directly to Apple and say, what’s the story? What’s going on? You know, all the debate around Zoom versus WebEx versus whatever, you know, we have people who are able to advise us what is the case and the risks of using it and how might we have a Zoom conference, you know, in a way that’s secure or what are the limitations. I think it’s really hard on really hard working small firms to have that level of knowledge who’s probably relying on an outside consultant who might be very busy or are relying on the chat rooms for Apple users, which may be very good intentioned, but don’t have them level of robustness.

And I don’t think this problem will emerge that quickly. I think this is one of those it is like weak foundations on your house, you know, you can move into the newly built house. It all looks lovely. And it’s not until a few winters on that you discover that the house has got a few problems in the foundations. I think this might take a few months to show. But whether it’s technology in cyber or even just, or just is the wrong word.

One that I think all of us have any size of firm need to watch out is the chronic nature of working from home. If you haven’t worked from home for a long time, it’s an incredibly intense experience. And I think I’m preaching to the audience here because we’re all doing it. But you know  you get up in the morning you do a  commute that’s measured in seconds. You don’t get the interruptions during the day that you do in an office. You don’t get people chatting football for a couple of seconds or offering you cup of coffee or asking your advice in those almost sort of micro interactions of just a few seconds that lift your eyes from the screen or the conference call. And where does work stop? And where does home life start? Especially if you’re I mean, almost everybody has a challenge. You’re either home-schooling or you’re dealing with elderly relatives, or you’re on your own and dealing with loneliness. You know, to find the perfect human condition, it probably doesn’t exist.

So, sort of recapping in my head, things like cyber and business process and security, I think that bigger firms are naturally better placed. And to be honest, for something like my firm, we’ve always seen that as part of our job. You know, we provide the balance sheet and the custody services for wealth firms and advisors who don’t need to invest their capital in that sort of stuff. This is just an extension of that same argument. So, on the technology and cyber front and the processing front, I think the value chain is divided appropriately.

We know what our skills are and what our merits are, and we stick to it. And we would be pretty useless at advising end consumers because we don’t have that skill set, right. And so, the value chain is split the right way. But the human element is for all of us. I think even those of us who are used to working from home, you still typically would go out and buy a coffee or you go and have some meetings in town and see people and all of that’s been stripped away. And I think we do need to work really hard at the chronic the enduring problem of how are we going to stay sane, basically, how do we watch for colleagues that might be struggling? Some of the toughest people that you think would always be robust, actually might be some of the guys that have the biggest challenges here, because they’re not getting that bonhomie for want of a better word, the banter that lifts them up. So, I think that’s something that I’m watching in all industries and across my family to just to make sure that your folks are finding a way to genuinely stay cheerful and upbeat.

Heather

Yes, I think it’s a really good point. The only point of difference I would have is I don’t think this is working from home. And for people who haven’t worked from home before, I wouldn’t want them to think that it’s like this because I love working from home. But you’re right. I mean, that the inability to go out and get a cup of coffee, the inability to focus for a period of time, because we’re trying to, I mean, we’re not even home-schooling, we’re just trying to implement the curriculum that’s been sent us from the school. It’s unprecedented. But I think I think you’re right, that the people who are vulnerable, and when they’re vulnerable, you know, to fatigue or just getting down. It’s not always who you  expect it to be. So how many people do you have working for you at Perishing?

Geoff

We have in the UK and Ireland and including the Channel Islands, we have about 400 and 450, something like that.

Heather

How are you keeping in touch with them through this crisis?

Geoff

Lots of lots of phone calls, lots and lots of WebEx’s. It’s a different style of contact. And back to the earlier point, doing far more blogs than I ever used to do, because I know that you know, I can’t phone all 450 people, not everybody likes blogs, they don’t have to read them. But quite a lot of it is informal permissioning.

So, you know, typical office environment for a lot of people because we are in big cities like London and Liverpool. People typically work through their lunch hour to try and get home earlier. You know, I’ve been pointing out by saying, well, I stopped for lunch now, you know, because it’s very intense. I actually I’ve got my mobile people can call me if it’s urgent, but in the middle of the day, I will stop for 30 minutes. And no, I’m not cheating and I’m not sneaking a look at emails or reading something I’m genuinely tuning out. And I think if you blog, those sorts of things, it can go a little way towards helping people understand it’s okay for them to stop. It’s okay for them to have an hour when they go and focus on home-schooling or they phone, their elderly relative, the work will get done. And you have to treat people as adults to say they’ll do the right work at the right time. But that doesn’t mean they have to start at 8:30 and finish at 5:30. So a lot of extra effort to contact those 450 people, a mixture of things we did before but do more like I say blogs, I used to have this language to stop me in the corridor because I think as a boss, one of the things, you got to be very careful, always people just smiling at you and telling you that your ideas are best quite often you find that other people’s ideas are better, who knew? And so, I used to sign off my limited blogs in the past with ‘stopped me in the corridor if you’ve got a different view’, and I missed that. S

o you know, trying to reach out and talk to people on the phone. It’s also quicker and maybe I’m just a slow typist Heather, you know, I find myself going write an email and then when 20 minutes for the reply, which probably won’t be the reply that I want, versus going, Hey, Heather, the such and such case. What are we doing about it? Oh, it’s all fine. Yep. No, it’s not fine. I’m worried about so and so, Really Geoff, I’ll give you an answer in five. Okay, catch you later. How quick is that and maybe I’m old fashioned.

But you know, and also,  when you speak to someone,  you hear the tone of voice, you can hear whether they’re upbeat and cheerful, or whether they might be struggling a bit you can still get quite a lot of emotional intelligence from just listening to people and how they’re talking. So lots more communication and trying to do it more consciously. And I hope this doesn’t come over cynically but trying to listen harder to what people are really saying and what they’re saying behind the words. Because that’s the way of trying to hold the business together.

Heather

Yeah, I really like to point out permissioning and I think that’s really important. And that’s something that that everybody can do. We don’t all have to portray ourselves as heroes.

Geoff

My Chief Information Officer blog just before he said that he was going to take an Easter holiday and I love that, in the messaging was basically for sure it’s not the same as a trip to the Mediterranean and the blue skies. But holidays are two things it’s the blue skies in the Mediterranean or climbing a mountain or whatever it is that floats your boat, probably not on a mountain, but you know what I mean? Versus actually getting your head out of work and just not having to think about work not worrying that the  next ping is an email that might take three hours of your evening away. So, I was really pleased and chuffed when Alpesh you know, blogged that I’m going on holiday at home Costa del sofa. And because again, its permissions people to say it isn’t just about take exercise or have a lunch break. It is saying use at least some of your days to you know, take time away from work and not just constantly be thinking about it.

Heather

Yeah, I agree. So that team of 400 to 450 people have adapted really quickly to mostly working from home. I assume there’s some people in the office. Do you anticipate some of those working practices persisting beyond the end of this crisis assuming there is an end to this crisis?

Geoff

Well, I’m hesitant because you know what I’m about to say, because you and I have talked about it in the past. There’s a lovely piece of research by a Wharton Professor chap called Philip Tetlock, who did a very, very long term study and cut a long story short, he basically asked experts, tell me about what the future is going to be and given some quite precise challenges, and on a list of about 82,000 different tests, which is quite a big number. What he found was, the experts managed to predict, first of all, about 15% of things that were deemed to be totally impossible actually happened. And about 25% of things that were deemed sure thing ‘Why are you even asking me’.  Then failed to happen.

I think there’s a huge danger in trying to sit here today and say, I know what working practices are going to be different in the future. I’m sure that we will feel more comfortable less around using various forms of web the meeting, I think will actually develop better courtesy, better manners, about how you have a meeting, you know, knowing to try and finish your comments with a little gap to let people jump in, for example, something we don’t do in face to face meetings because we can see the body language. So, I think you can begin to see some changes. But I think it’s a fool’s errand to sit here and say, we know what those changes will be in six months’ time. And I think Professor Tetlock study kind of proves the point. One in four sure things didn’t happen.

Heather

For those who go and seek out that paper, be sure that Geoff and I are both foxes.

Geoff

Yes, it is a good read.

Heather

One of the things that I know you’ve talked to my colleague, Clive and my chairman Peter about is this idea for the potential for hyperinflation post crisis. And I’ve not heard your views on this. I’m really looking forward to it. I’m sure our listeners are looking forward to hearing as well.

Geoff

So, I know this is sounds absolutely crazy and when the world is talking about recession and the biggest recession since 2009 1929, and all the rest of it. But here’s the basic challenge. Go back to some basic schoolboy schoolgirl economics, supply and demand says, where does price settle is where demand meet supply. We have a government or governments around the world that are basically moved from QE to helicopter money. So, speaking in very broad terms, but if you think about it, during the QE phase, we had inflation in financial assets, and you can debate whether there’s real value there or not. And that’s probably a whole new podcast with people far more intelligent than me. But essentially, if you look at asset prices and what QE did, I think there’s a strong correlation between central bank’s buying assets and asset prices going up.

Now we have helicopter money, which for all the good reasons for social good and social stability is basically giving free money to the population, but the supply of goods and services is not increasing, if anything is going in the opposite direction. You know, look at the aeroplane industry, the hospitality industry, the clothing industry, although I did see, I was leafing through I think it’s Grocers Weekly, but there’s an article in Grocers I was curious about this because there is a trade-off between alcohol sales and clothing sales, and one is plummeting and one is rising, unfortunately the two don’t  offset. And so, there are little pockets of excess supply or ability to supply but a lot of places what you’ve got is currently a demand and supply drop.

But as the helicopter money starts to come through demand will pick up but will supply pick up. Because you’ve got complex supply chains. You’ve got dislocations in manufacturing and service industries and people going to minimum service standards. I mean, just think about it. All of us who now order everything online, how often do you get an email back from the vendors if they’re open that says, please bear with us because of social distancing we’re producing goods more slowly, and it will get to you slower because it just takes more time. All of that says we have reduced supply and potentially persistent reduced supply because value supply chains will not solve themselves that quickly. So, we’ve got that reduced supply. And at the same time, increased demand. Well, theory of the firm theory of price will tell you that leads to higher prices. It’s the only way the supply curve and the demand curve can meet. So, prices potentially rise. Now whether it’s inflation, hyperinflation or stagflation, and probably back to Mr. Tetlock paper and way over my mark, and I don’t want your listeners to think that I am guaranteeing inflation. I’m saying it’s something to be wary of when you cast your eye around as a business leader, whatever job you’re doing, but as a business leader, when you cast your eye around, you really want to ask yourself, what else should I be thinking of? So, when all the mainstream media or the trade press are talking about things, those are important, but the real things that will surprise you almost, it’s almost the truism. So, things that no one’s talking about that will lead to the biggest impact because no one’s prepared. And I do think there’s a risk that in the end of this six months, nine months, a couple of years, maybe we get an outbreak of inflation.

Now, we know, or governments know more importantly, that a certain amount of inflation helps growth, there’s a certain amount of inflation allows you to deflate debt. So, you borrow $100 or £100, inflation is running at a few percent. in real terms, you don’t have to pay back after repayments, in real terms, you pay a bit less. So that helps. And, of course, if the governments have borrowed huge amounts, a little bit of inflation reduces their bit in real terms, but if you let the genie out of the bottle, and it gets out of control, now you’ve got potentially significant inflation.

Now, here’s a couple of questions how many of today’s business leaders have really managed an inflationary environment. And whether you’re a wealth manager that says I now need to tell my client that sitting in cash it’s destroying value. So, and maybe by three, four or 5% a year, so at the moment, maybe you can get 50 bps on cash depends where you sit on your appetite for credit risk or where you place your money. But, inflation’s 2%,  give or take, so you’re losing one and a half real. But if you were losing 5% real, what would your clients say? And are you’re able to tell your clients actually equities, either in a collective or directly might be the best hedge for inflation. After all, equities, companies have pricing power, they’re the people putting the prices up of goods.

So very simplistically, equities have an inherent ability to match or better inflation. But how many people have tried selling equities to end investors as an inflation hedge? It’s quite difficult story. And if you’re just running a business, a regular business, how many people writing business plans have had to write business plans within material inflation baked into the assumptions? You know, instead of saying I’ll keep my costs flat, or I’ll let my costs drift down a little bit, or I’ll push them down a little bit. How many people have said well, my cost base at the end of this year will be 5% higher and that’s a good result? And how do you do with pay rises? How do you manage people’s pay expectations when inflation isn’t material enough for it to visibly impact what they spend their money on?

I was talking to Clive and Peter separately about it, just because I thought no one’s talking about it. So, I’m not saying this is my central forecast. But I think any good business leader looks around and says, but if it started to come into range, what would my response would be, rather than waiting for it to come into range, and then say oops, I better to do something about it. So that was my thought processes.

Heather

I think it’s really important to think about these things. And I’ve been surprised at the number of people that I’ve spoken to and I asked to have you made changes to your three/five-year business plan? The number of people who say, not yet because we’re so paralysed, but considering these different scenarios is so important. I agree. And there’s so much that could change because we haven’t really seen COVID hit developing markets, where so much of our supply chain relies on and there was a stat I heard that you’re the number of hospitals in most African countries has capacity that’s less than a single hospital in New York City. And so, the devastation that might come to those countries but then also to global supply chains as a result, it’s just there’s this really unknown

Geoff

Things to worry about. And I think to be fair, to most businesses, there’s a piece of consultancy advice I saw the other day, which really resonated which said for now, basically said something like, hey, bosses, stop playing to win and play not to lose for a few months. And I think that’s very good advice. But, you know, those of us who are lucky enough to run companies, part of our job is to step away from the day to day, find half an hour a day or whatever it is, and do some thinking and saying, what do I want the team to be thinking about in the near future? What do I think we need to be prepared for? And I think inflation is only one of the things that I think we need to think about.

But I think the shocks to the economic system are large enough that we should look at things that we might not have looked at in the past and having some thoughts about this. How would you react? What would you do? It’s really important to have those sort of , I was going to say idle moments, but they are absolutely not idle moments that I mean, put the Zoom down, put the email down, trust your team to keep running the business and walk around your garden if you’re lucky enough to have one and do some serious thinking about what should I be asking the team to mull on a strategic level.

Heather

To the business leaders they go, we’re back full circle. And I think the initial two, three weeks were so busy, but my sense is that people are able to catch the breath now and your right business leaders need to take that time to step away and think about.

Geoff

One other topic, which I hope people will find interesting. Certain idle moments we all have,  I rearranged my business bookshelf, right? I have a shelf full of business books, you know, things like the Black Swan and all the rest of it. Most of which I’ve decided that once you read the inside cover, you don’t actually need to read the book, because it tells you everything. But I found one that comes from 1979, which is quite a long way back. And it’s called credit in the business cycle. And it has the merit of being extremely short. But what I found interesting, and I do think it’s really important for everyone in the industry to think about is it pointed out that most company failures in a major crisis do not happen during the crisis. It’s pointing out that most failures happen when firms start to try and grow again but do it from a weakened base. And I think that timing issue is something that, as business leaders start putting their strategic heads on, everyone will start reaching for growth, everybody will be shorter revenue, shorter profit. So, let’s go and stretch ourselves.

But you will have colleagues who are tired, you will have processes that have been changed to cope with working from home that need to be re-changed back into working in office. I’m not sure whether there’s a new acronym by the way WFH and WAW, work at home and work at work. Or maybe, but as you migrate back, what happens then do you can you find the talent to do growth? Or have you got a pent-up demand of people who would naturally have churned out of your firm because every good firm does every firm loses people.

But do you get people who move do you suddenly find there’s a wall of holidays because everybody wants to take holidays? Because hey, we’re all bored of our little tiny workstations at home. Have you got enough capital because if you run down your cash to see through the rough times? And so that 1979 book, very short, easy to read, but it did leave me just reminded that actually one of the dangerous signs will be as we think we’ve come through this, how many people in the value chain will fail, who’s got sufficient capital in their business, whether that’s financial capital or human capital, to be able to grow again, and who will you know, look great, come up starting blocks raring to go, and then just find they haven’t got the money. And I noticed the Christopher Woolard the FCA CEO, commenting just 10 days ago about preparing for firms to fail. So, there’s clearly at least in some of their thinking, that this is a risk. And I know it’s a miserable thought to have. But again, I think leaders need to be thinking what else should I be thinking about, how many people do we rely on that we might not be able to rely on in a year’s time?

Heather

Absolutely. I think that’s a really, really important note to end on.

Geoff

Importance better than miserable.

Heather

I won’t say interesting because that could be taken the wrong way. No really, really important note to end on and I and that discipline of taking that time out, to think that the idle moments are really important. I love that idea of reorganising the business bookshelf.

Geoff

It’s amazing what you find that you’ve read, and it’s a great way of finding ideas.

Heather

Absolutely. Great. Geoff, thank you very much for this. And really helpful thoughts on permissioning, idle moments are all sorts of things. Thank you very much.

Geoff

Take care of yourself.

Heather

I hope you enjoyed listening to that conversation with Geoff towers, just comments about permissioning our teams to take breaks and switch off are so important and relevant. Geoff also reminded us that as business leaders, we need to take idle moments to reflect on how to prepare our businesses for recovery, I hope you’ll take some time to reorganise your bookshelf. You might be surprised at the ideas it spurs. Thanks for listening.