SPECIAL REPORT ● WEDNESDAY 21 MAY 2008 GLOBALGLOBAL PLAYER PLAYER

FISCAL FOCUS THE IMPORTANCE OF FINANCIAL SERVICES TO THE SCOTTISH ECONOMY Picture: Craig Stephen

IN ASSOCIATION WITH:

I N T R O D U CT I O N OV E RV I EW 5 Scots’ strength in wealth management stands up to international scrutiny

GLOBAL PICTURE 7 In a world of competition, how does Scotland fit in the worldwide picture? Welcome to an PENSIONS 8 Why the message about saving for a comfy retiral outstanding is nearly getting through initiative PERSONAL FINANCE 10 The challenges ahead for Scots’ ON BEHALF of The Scotsman, Iam well-being are delighted to introduce this special truly formidable supplement published in connection with the Global Financial Services Week. The Scotsman will give daily coverage to the conference, for it is an outstanding WHA’S LIKE US? 11 initiative. We are pleased to welcome it and wish it well, and to extend the cover- How perceptions of anti- age that its participants and concerns Scottishness south of the truly merit. Border affect branding Financial services in Scotland are now a critical part of our economy, account- What will be the impact of the credit participants to hear at first hand what ing for 7 per cent of Scotland’s GDP, and crisis on the world’s leading the experts are saying and to exchange T I M E TA B L E 13 9 pent of Scottish jobs, or 108,000 economies? Will it slow the pace of views on the major issues at hand. directly. It is our most internationalised globalisation, or hasten the transfer of The conference also provides an Highlights of the week’s sector, and its flagship companies are financial power from West to East? excellent opportunity to showcase activities listed hour by known the world over. What will the emergence of China as one Scotland’s strengths and to hour and day by day This is a testing time for the industry. of the leading economic super powers set out the attractions of a It has enjoyed stellar growth in recent mean for the financial services indus- Scottish presence and years as the global economy has ex- try? And within the industry, how are location for inward in- THE CITY VIEW 14 panded and the need for financial ser- regulatory and governance proce- vestors. vices has increased. But the global credit dures likely to change in the period And it will reinforce Caledonia’s symbiotic crisis is set to make the period ahead ahead? the importance of the relationship with the much more challenging. The range of speakers from sector to Scottish Square Mile is seamless Cost cutting will be an obvious priori- some of the world’s leading decision makers and ty. But the industry’s health critically financial companies, and the opinion formers. depends on its ability to adapt and inno- global range of the topics Bill Jamieson FINANCIAL EDUCATION 16 vate to take advantage of the upturn under discussion provide an Executive editor of The when it comes. outstanding opportunity for Sc o t s m a n A new, impartial, free service could help the nation’s money matters

A world of opportunity with Scotland at its centre SMALL NUMBERS 18 Teaching children to be more cash GLOBAL Financial Services Week is challenges of working around the The importance of financial embedded the financial services savvy at school more than timely; it comes at a time globe. We will also examine services to Scotland’s and the UK’s industry is in Scottish public life. will reap rewards of unprecedented interest in global opportunities for UK companies in economy is underlined by the Schools, universities, professional financial markets and services. Russia, China, India and elsewhere. commitment given to Global bodies, policy thinkers and local It gives Scotland the But just as importantly, we will Financial Services Week by the councils are all involved. This is, in EMERGING MARKETS 20 opportunity to hear from some of hear from international companies Scottish Government and the turn, reflected back to us in the world’s most respected who have chosen Scotland as a Treasury. The Chancellor of the international perceptions of The untapped potential experts, many of whom will take location for some of their Exchequer, Alistair Darling, Scotland as a place part in the conference at the EICC operations. What part did the skills Scotland’s First Minister, Alex characterised by a rigorous of affluent classes in that is the centrepiece of the week, of our workforce have to play, and Salmond and the Scottish approach to business; high China, India and Russia on Thursday 29 May. Discussions at how can we ensure that we develop cabinet secretaries for finance professional standards and that event, and throughout the that talent base to attract future and education will all a rational and week, will start from a global generations of investment? And address the event. realistic approach FUND MANAGEMENT 22 perspective. We will hear how how do we show young Scots that The range of bodies to investment. established Scottish-based opportunities in the industry have participating, and the Owen Kelly Current blip should not businesses are operating changed dramatically in recent geographic spread of Chief executive of internationally, with discussion years – offering a wide range of the week’s events, are Scottish Financial detract from Scotland’s focused on the benefits and career paths, at home and abroad? measures of how Enterprise overall success story

Wednesday 21 May 2008 | THE SCOTSMAN SPECIAL REPORT | GLOBAL PLAYER 3

OV E RV I EW

ed to finance, actuarial research and accountancy, but an expanding involve- ment in campus enterprise and know- ledge entrepreneurialism. All these attractions are nurtured and sustained Bi l l at the highest level through the work of the Financial Services Advisory Board, a pioneering collaboration between the Jamieson financial services industry and the Scot- tish Government; Scottish Enterprise, EXECUTIVE EDITOR, THE SCOTSMAN Scottish Financial Enterprise and busi- ness promotion agencies such as the Scottish Chambers of Commerce. So what are the threats? Financial ser- vices in America and Europe are now Event gives country a chance wrestling with the shocks of the global credit crunch. Many companies are scal- to reiterate its importance to ing down, downsizing and re-adjusting the sector on a global scale as business adapts to the new realities. Of great note: Cost control is now at the top of the Scotland has an priority list. Scotland’s ability to offer enviable worldwide competitively priced office accommo- COTLAND’S first Global Finan- reputation for capital dation, savings on ancillary services and cial Services Week could not have investment shorter commuting times now makes it come at a more propitious or Picture: Callum Bennetts a highly attractive alternative to the City S more challenging time. It is of London where, after a stupendous propitious because it provides an growth period, companies are battling outstanding opportunity for the sector to control expenses and bring down to demonstrate its importance, not just overheads. to Scotland’s economy, but its strengths There is no certainty as to how this on the global stage. crisis will play out. Some say we are past And it is challenging because it is the worst in the financial sector. Perhaps being held against one of the most New focus on it is more accurate to say we may be past serious convulsions in global financial the worst of the first stage. We do not markets for a generation. Inter-bank know as yet how severely the contrac- lending has all but seized up and banks tion in mortgage and consumer lend- have had to make huge provisions ing, the correction in house prices and against their lending books, while constrained lending to the corporate funding constraints and tighter lending Scots finance sector will impact on the wider econo- policies have borne down on the my. But a slowdown is most clearly housing and consumer markets of under way, and cost competitiveness America and Europe. panded through booms, depressions, Europe, while Scottish banks and now counts more than ever. Ten months on from the onset of the two world wars and a hectic pace of tech- insurance operations span the world. One consequence of the credit crunch credit crisis, central banks are wrestling nological and social change. But the in- The attractions for overseas investors is a searching re-examination of the to rebuild confidence while a toxic com- dustry here is much more than a few are widely acknowledged: a skilled and regulation and governance of financial bination of economic slowdown and grand battleships. Around them has educated workforce, excellent trans- institutions, and how to tighten gover- rising inflation threatens a prolonged grown a vast flotilla of smaller boats, port links with direct flights to most of nance without comprising the ability to period of sub-par growth and activity. ranging through specialist activities the financial centres in Europe and innovate, which is central to recovery. Business and investment confidence such as accountancy and actuarial America; a highly respected and trust- Scrutiny is also extending to the size, has taken a huge knock. services, asset management, custody worthy business culture, with high stan- structure and scale of these institutions Against such a backcloth, communi- services, corporate finance, merger and dards of regulation and supervision; themselves. Citigroup has announced a cating Scotland’s attractions as a global acquisition advisory work, insurance significant cost advantages in terms of dramatic slim down, extending to some financial sector is a daunting task. But it and savings products, marketing and office costs over the City of London; and $500bn, and equivalent to a fifth of the is one all the more compelling to under- product distribution. an outstandingly attractive environ- entire group. Other financial institu- take. One evident characteristic of the As a result, Scotland’s financial sector ment for young families. tions are also embarking on sales of sector is its resilience. Scotland has long has grown to be the most internation- An additional attraction is the depth non-core businesses. enjoyed a global reputation for prudent alised branch of its economy, with and breadth of Scotland’s universities But the need for banking services, in- custodianship in finance, wedded to an dozens of overseas companies repre- and educational institutions, not only vestment management, pensions and enterprising and innovative spirit that sented. It now accounts for some 7 per with departments and faculties dedicat- retirement planning, accountancy and saw Scottish institutions in the forefront cent of Scottish GDP and around 9 per corporate M&A services, asset manage- of venture capital investment around cent of jobs, employing 108,000 direct- ment and custodial services has not the world. Investment trusts in Dundee ly. Its exports to foreign countries were “Scotland has long enjoyed changed. These needs endure and will and Edinburgh were at the cutting edge put at £1.1 billion in 2006, accounting a global reputation for grow. It is what we can deliver in these of globalisation in the 19th century. for 19 per cent of total international fields to meet changing market needs, Scotland’s leading banks and invest- Scottish services exports. It is one of the prudent custodianship in and how efficiently and effectively we ment companies have survived and ex- leading fund management centres in finance” can deliver them, that is key.

Wednesday 21 May 2008 | THE SCOTSMAN SPECIAL REPORT | GLOBAL PLAYER 5

GLOBAL PICTURE

Fresh ideas will save Scotland a place among world players Where on

Earth do World of difference: Brazil, India and China are vying for a slice of the financial action we fit in? Picture: Craig Stephen

Scotland’s “sages” is Susan Rice, chief work and that is a bonus for the econo- English might be the universal executive of Lloyds TSB Scotland (pic- my. We don’t want to talk ourselves into language of world business but, with tured below). She sits on the court of something that isn’t happening. Brazil, China and India blazing a trail as directors of the Bank of England and is Confidence is a critical part of financial global hotspots, there is room for im- Ke n n y a non-executive director of Scottish services,” says Rice. provement. And, as Germany, France and Southern Energy. All the same, the conference’s task and Switzerland bid for a share of the “I take a measured view of things. must be to see if Scotland is preparing global financial services market, our Ke m p People still need bankers, no matter properly for the future. The last decade nation’s reliance on the connections BUSINESS JOURNALIST what the circumstances,” she says. has been remarkably buoyant for Scot- with the United States and Canada Lloyds TSB Scotland, as a Scottish clear- land, although the financial landscape needs to be addressed longer term. ing bank, has a unique snapshot of the has changed beyond recognition in that US-born Rice says a global industry Scottish economy. “We’re the only bank time. Many Scottish insurance and pen- requires people with global outlooks – that publishes separate accounts for sion brands have disappeared, replaced and by this she means more people HE Sage of Omaha has declared Scotland and this allows us to keep track by more global institutions attracted by gaining experience in other places. She the credit crunch is already over. of what is going on inside the nation. We the calibre and availability of the staff. says: “Over the years, many of our most But Warren Buffett, the world’s see, for instance, that our Scottish cus- Of course, the success story has been the capable people have left Scotland and T richest man, is famed for shelter- tomers are less likely to fall into arrears growth of the Royal Bank of Scotland built successful careers abroad. A mea- ing his large pots of cash away from the than those elsewhere in the UK.” under the stewardship of Sir George sure of the success of a global industry in stock markets when life is tough. The The bank’s analysis also shows that Mathewson and Sir Fred Goodwin. Scot- Scotland is its ability to lure people back sages of Scotland are unlikely to share Scotland’s economy remains inside the land’s stature as a global player is due in to top jobs in Scotland. We need to en- Buffett’s upbeat message just yet. curves of the wider UK economy. While no small part to this achievement. sure there is enough of a global financial The Global Financial Services Week Scotland never reaches the higher levels A thriving global industry needs community for Scots to return home to could not come at a better time. 2008 of GDP enjoyed when the south-east of rising stars, though, and Rice believes work. We can’t afford to be parochial.” will be remembered as the year England is overheating, neither does it the key to this is strong and relevant ed- The influx of migrants from Eastern Scotland’s two major financial jugger- get as badly stung in a down swing. ucation and an outlook that is not Europe has given Scotland a boost, not nauts – the Royal Bank of Scotland and There are, however, concerns that will parochial, but properly global. She says: only in terms of new customers for the HBoS – had to seek record amounts of exercise the minds during Global Ser- “We need to be more thoughtful about banks but the emergence of a new class refinancing with controversial rights vices week. The fall-out from the North- education. Financial services require ex- of vibrant entrepreneurs and qualified issues. ern Rock collapse is still being felt, house ceptional degrees of fi- labour. Indeed, Lloyds TSB Scotland has There are still too many indicators – prices across the UK have dropped, nancial literacy. Maths taken on a number of Polish staff. including a rising oil price – to suggest mortgage applications are down and and accounting are Scotland’s compact size also serves it an upturn is on the way but the received high street retailers are gloomy. the bedrocks, but we well. Rice says: “There is a strong, con- wisdom in any market is to plan for “At present, Scotland continues to need innovative centrated global financial community growth and recovery in the downturn. have historically high levels of people in thinking in marketing in Scotland. That makes us very fleet of This is a likely goal for the one-day and products, foot compared to other larger centres. conference on 29 May which will anchor “We must ensure there is too. And we For example, some Edinburgh-based the week across Scotland. enough of a global should be a fund managers operating in global So what exactly is the current state in lot better at markets want to stay put in Scotland and Scotland? And are we still capable of financial community for foreign lan- the availability of talent and the range of competing on a global stage? One of Scots to return to” g u a g e s .” international banking facilities helps.”

Wednesday 21 May 2008 | THE SCOTSMAN SPECIAL REPORT | GLOBAL PLAYER 7 PENSIONS Game on: Britons are still not putting enough away for retirement, but we seem to be making smarter moves Picture: Bill Henry

Check out possible moves

saving at the upper end of the savings variable annuities. As Rachel Vahey, These products are not suited to range, such as business owners, self- head of pensions development at everyone, since it depends on how you invested pension plans (SIPPs) are prov- AEGON, explains, the best way to view risk. Some might argue that they ing ever more popular. The beauty of conceptualise a variable rate annuity is would be better off putting their money Anthony SIPPs, from the individual’s perspective, to think of it as a way of balancing the in a deposit account and drawing on the is that they offer tremendous flexibility. risk between the member and the interest. However, Vahey points out that They can also be used as a very tax provider. In a standard annuity, the while this line of thought is common in Harrington efficient “home” for shares in a company provider takes all the risk. The member buoyant market conditions, when mar- AWARD-WINNING JOURNALIST share scheme. might live decades longer than the aver- kets get difficult the value of a guarantee “After five years in the SIPP, an individ- age lifespan and still the provider’s can increase sharply in people’s eyes. ual’s company shares are tax free,” says promise to pay the member a set Peter Jolly, head of distribution policy Naismith. “However, you can’t easily put amount will continue unchanged – even at Standard Life, says one of the biggest ordinary equities, such as any IBM or ICI though the provider is losing money on issues in the pensions market right now shares you might have bought, into a the arrangement. With the new “alter- is the FSA’s efforts to change the way Saving for retirement is vital, SIPP. If you are going to place, say natively secured” income, often called advice is given to all segments of the £10,000, of equities into a SIPP the way income drawdown, where the member public. The FSA has just released its but try not to leave it too late the Inland Revenue wants you to do it is delays buying an annuity and just draws interim report on the way pensions are to pay the cash into your SIPP and then down a set amount of their pension pot distributed in the UK. It is very con- invest in the equities through the SIPP.” each month, the risk of running out of cerned to separate out selling from ACT: The Great British Public is Naismith points out that a lot of the cash rests squarely with the member. independent advice. still not putting enough into money currently going into SIPPs is not By way of contrast, the variable rate “The problem the FSA is grappling long-term savings. The good “new” money, in the sense of the UK gen- annuity, also called the middle market with is that while the salesman is paid F news, according to Scottish erally increasing its long-term savings. option, balances the risk between the directly by the provider, ultimately the Widows, is that we might be getting Rather, it is people withdrawing from member and the provider. The provider Independent Financial Advisor (IFA) better at it. other forms of pension and putting agrees to pay the member a fixed tends also to receive at least some remu- The company has been tracking saver more into SIPPs because of the perceived percentage for life, but the member neration from the provider,” Jolly points behaviour every year for the past four increase in flexibility that SIPPs offer. does retain the right to regain access to out. One of the upshots of this is that the years and its head of pensions markets Statistics in this field are next to im- his or her pension pot if they need it for FSA is certain to call for much higher lev- development, Ian Naismith, says about possible to find, as there are a number some emergency. The provider agrees to els of qualification for advisors which, 49 per cent of people are saving just of specialist SIPP providers, and work- return the lump sum to the member, less ultimately, should be a good thing for enough to give them a pension that ing out the total value of assets under any payments made. “These products the consumer. Better qualified advisors bears some relation to the salary they management of these players is not have been available for years in the US, should translate into better advice. were on before they retired, say half of easy. However, Naismith is confident where providers are much more experi- Jolly points out that a number of IFA their final salary. This is up on the figure that the SIPP industry has seen double- enced in their use of hedging to offset firms have already “upskilled” their per- for previous Scottish Widows reports, digit growth over the last few years. the risks associated with providing a sonnel quite substantially and are look- but still means that 51 per cent of us are One of the problems with pensions guaranteed income,” says Vahey. ing to differentiate themselves by the not saving anything like enough to save generally is that people dislike the idea quality of their advice. So any move from us from a penurious old age. of having to invest in an annuity. They the FSA that highlights the value of qual- The figure plummets to 75 per cent if worry about the fact that once they buy “One of the problems with ifications is good for them. However, the savers in final-salary schemes, most of an annuity, their pension pot is forever pensions is that people large number of IFA firms who have not which are now closed or are closing to gone from them and will not be part of moved with the times on this one face new members, are excluded. their estate. One alternative to this is a dislike the idea of having to some interesting challenges in the That said, among those who are new-to-the-UK breed of products called invest in an annuity” months and years ahead, he suggests.

8 GLOBAL PLAYER | THE SCOTSMAN SPECIAL REPORT | Wednesday 21 May 2008

PERSONAL FINANCES

A rise in utility bills and borrowing is a harsh reality for Scots Bitter pill to swallow

Keep it down: Rising Jeff living costs have given households a financial headache Picture: Craig Sa l w a y St e p h e n PERSONAL FINANCE EDITOR, THE SCOTS M A N

VER the past year, personal fin- safety and away from the markets with awareness of the need for more formal whose products – mainly investment ance has preoccupied headline the greatest growth potential. Conse- personal finance education and to pro- and pensions – they sell to clients. While writers like never before. It’s a quently, pension funds also face a de- vide access to financial advice. many advisers believe offering this sys- O rare day when there is nothing cline in value, a prospect made worse by At the heart of the latter initiatives is tem to their customers is essential in to report on house prices, energy bills, the demise of final salary pension Otto Thoresen, Aegon chief executive making expert advice as accessible as inheritance tax, mortgages, volatile schemes. This issue was again thrown and the man behind the Thoresen Re- possible, a growing number insist that stockmarkets, personal debt, identity into sharp relief in April, when the strike view, which has spent over a year look- advice can only be given with real in- fraud or the increasingly complex area at the Grangemouth oil refinery was ing at the problem of making financial tegrity if it’s paid for on a fee basis. of retirement. And that is just the top of ostensibly about plans to close the advice available to the most vulnerable The outcome of this debate – if there is it, giving a short-hand indication of the plant’s final salary pension scheme. As it in society. Thoresen’s goal is the devel- a clear one, which isn’t a guarantee – will immensity of the challenges facing the becomes increasingly clear that in an opment of a UK-wide financial advice have a long-lasting impact on Scot- personal finance sector in Scotland. ageing population the state pension service that everyone can access, funded land’s financial advice community. In the last year Scots have been hit falls woefully short of funding a decent by the government and the financial Of course, before advice there’s the from all sides by the so-called credit retirement, Scotland’s myriad life services sector and offering help on issue of ensuring school-leavers are crunch, which has gradually intensified offices, with Edinburgh home to some everything from bills to mortgage armed with the basics they need to make since last autumn. In the mortgage mar- of the UK’s biggest pension and payments. the right financial decisions, from open- ket alone, first-time buyers are increas- investment providers, have a vital role to Scotland’s independent financial ad- ing a bank account to understanding ingly squeezed out, particularly those play in shaping the future of retirement visers (IFAs) have an important role to how mortgages are worked out. The without decent-sized deposits, while provision. play here. As The Scotsman IFA of the Scottish Parliament appears to have anyone renegotiating a fixed-rate deal Then there are the problems encoun- Year competition continues to demon- recognised the need for more for- this year faces a painful hike in repay- tered by households all over Scotland, strate, the country is well stocked with malised personal finance teaching and ments. from growing personal debt to rising experienced and high-calibre IFAs. is looking at ways of addressing the And while insolvency figures released energy bills. If there is a silver lining Their industry has seen big changes in issue with the help of the financial at the start of May suggested the num- from the alarming rise in personal debt recent years – not least in terms of the services industry. ber of Scots going bankrupt had begun in recent years, it’s that there’s a greater qualifications they are required to hold It’s clear that from those grassroots falling again, the reality is that, as the – and the retail distribution review, up to providing for retirement, the chal- implications of the credit crunch be- currently under consultation with the lenges facing the personal finance sec- come clearer, Scotland faces a personal “There are problems for Financial Services Authority, promises tor are formidable. debt crisis of frightening proportions. households in Scotland, to re-shape the way in which advice is In meeting those challenges, the Elsewhere, while the stockmarket has accessed, given and paid for. At the heart value of the industry to Scotland’s so far proved relatively resilient, in- from growing personal debt of the debate is the topic of commission, financial well-being and its future vestor uncertainty has seen a flight to to rising energy bills” paid to advisers by the companies should become evident.

10 GLOBAL PLAYER | THE SCOTSMAN SPECIAL REPORT | Wednesday 21 May 2008 WHA’S LIKE US? Walking tall: Sc o t t i s h Widows is not afraid to flaunt its heritage

Tense political landscape leaves many of Scotland’s companies unsure of where they stand

Firms split over Scots identity

the Border. It may be led by the more Scots had carefully cultivated to their major brands that is upfront about its rabidly English “nationalist” news- commercial benefit. Now, they are not Caledonian heritage, and boasts about papers but the casting of doubt on the so sure of their unique selling point it in terms of marketing, is Scottish legitimacy of Scots like Gordon Brown (USP). Indeed they fear the “U” bit of the Widows. and Alistair Darling to lead the UK gov- USP may not help the “S” bit any more. The gorgeous, pouting, windswept- Pe t e r ernment has a worrying resonance for It should be said that there has been a but-not-a-hair-out-of-place widow her- Scottish financial services. gradual move away from purely Scottish self is still catwalking across rugged McMahon Speak privately to anyone in the in- branding. RBS, though proud of its Cale- landscapes in the cause of the company, dustry in Scotland about whether this donian roots, has decided not to be the though Widows is not a Scottish com- BUSINESS EDITOR, THE SCOTSMAN so-called “anti-Scottish” mood is affect- Royal Bank of Scotland, except to its pany as it is now part of Lloyds TSB. ing their business and you get a nervous close friends. Were Widows ever to re-brand, per- smile by way of reply. HBOS is slightly different, with the haps becoming just SW, then we would So far, the doyens of the world of pen- Bank of Scotland remaining visible know that the game was really up for the OST business people regard sions and life businesses say, so good. north of the Border at least, after the Scottish business identity in the world politics in the same way they There is no sign of an anti-Scottish back- stushie over its identity in the wake of of financial services. regard taxes. The political pro- lash, they maintain. the Halifax tie-up. But it is only Scottish There is no indication that this is M cess is a necessary evil, some- With some justification they can in Scotland. about to happen any time soon and it thing to be tolerated, or even endured. point to the fact that the English people Scottish Life is very much a marketing should also be emphasised that there is They may not like it, but they have to seem generally unmoved to the point of division of Royal London. Scottish Equi- more to a Caledonian identity than work with it because politics influences apathy when it comes to being sum- table still exists, but is part of the AEGON mere commercial branding. business, and Scottish business in par- moned by some of their more rabid empire. Financial services in Scotland, mainly ticular, like never before. newspapers to march north to re-build Other great names which had the “S” companies in and around Edinburgh, The Scottish parliament is run by the Hadrian’s Wall. word in their title have long ceased to be still feel that they have what might even Nationalists, the UK government by But that does not mean that those in independent with their tartan-clad be described as a distinctive “appella- their bitter enemies, Labour. The ten- financial services north of the Border do identity gradually – or in some cases tion”. It goes deeper and is more subtle sion between the parties, and in not care or are unworried by the mood suddenly – erased. Indeed one of the few than just branding. Labour’s case within the party, is palpa- abroad, if England can be described in They will spend a lot of time in this ble. Add to that the prospect of the those terms. Far from it. They are watch- week of activity discussing technical Conservatives winning power at ing developments in politics and the matters like the structure of their prod- Westminster and you have exactly what national mood in England with trepida- “One of the few major ucts, the liquidity crisis and regulation. business dislikes most: uncertainty. tion. Until now it has been a given that brands that is upfront And so they should. Those are the And as if that were not bad enough having a Scottish brand in financial about its Caledonian foundations on which their businesses there is another issue which haunts services was a boon. are built. Caledonian business leaders – the per- The reputation for thriftiness, pru- heritage, and boasts about But they ignore politics and the poli- ception of Scotland and Scots south of dence and financial rectitude was one it, is Scottish Widows” tics of identity at their peril.

Wednesday 21 May 2008 | THE SCOTSMAN SPECIAL REPORT | GLOBAL PLAYER 11 M O N DAY 26 MAY EDUCATIONAL EVENTS Time26 MAY to be advised Scottish Centre for Financial Education Money Week at Cambusbarron Primary T U ES DAY School, Stirlingshire 27 MAY 8.30 - 10.00 14.30 - 17.30 17.00 - 20.00 17.00 - 22.00 18.00 - 19.30 19.00 - 22.00 Financial Services Advisory Scottish Banking Forum Developing Talent – Scottish Council Foundation Executive Briefing and Chief British Bankers Association Glasgow City Council and Board Business Breakfast to 2008 Business Breakfast. Education’s role in Annual Lecture at the Information Officer Dinner: Scottish Parliamentary International Financial Launch Strategy Annual Wealth Managers Driving supporting the Scottish Playfair Library, Edinburgh Harnessing Innovation at Reception at the Scottish Services District Dinner Report at the Balmoral for Success: Becoming Financial Services Sponsored by Lloyds TSB the Balmoral Hotel, Parliament, Holyrood Glasgow (invitation only) Hotel, Edinburgh Tomorrow’s Elite Venue to Community at Maclay Edinburgh (invitation only) Sponsored by Accenture be confirmed, Glasgow Murray & Spens, Glasgow In Partnership with Accenture

EDUCATIONAL EVENTS 11.30 - 14.15 14.15 - 16.00 Showcase of Graduate Showcase of Graduate Careers in Financial Services Careers in Financial for university staff Services for graduates and W E D N ES DAY Ed i n b u r g h undergraduates Ed i n b u r g h 28 MAY 8.15 - 11.00 8.30 - 18.30 16.30 - 19.00 Scottish Breakfast Briefing Scottish Insurance and International Chartered Scottish Widows – Savings Seminar: Retail Distribution Investment Management Club Banker Conference 2008 – and Investments – A Global Review at the Balmoral Breakfast – Insurance for the Facing Challenges of the Perspective and Individual Hotel, Edinburgh Facebook Generation at Price- Future 2008 at the Trends Scottish Widows HQ, WaterhouseCoopers, Edinburgh Balmoral Hotel, Edinburgh Edinburgh (invitation only) EDUCATIONAL EVENTS 8.15 - 11.00 8.15 - 11.00 Financial Services Recruit- Stock Market Challenge ment Day Jobcentre Plus, Showcase with Fiona Hyslop, Ed i n b u r g h MSP Clydebank High School, Details correct at time of West Dumbartonshire going to press. Click on w w w .g l o b a l f i n a n c i a l T H U R S DAY s e r v i c e s w e e k .c o m 29 MAY 9.00 - 14.30 for updated information 19.00 - 22.00 Global Financial Services Global Financial Services Conference at the Edinburgh Week Evening Reception at International Conference Edinburgh Castle Ce n t r e (invitation only)

EDUCATIONAL EVENTS 9.00 - 14.30 Glasgow Financial Services Talent Attraction Tour Hosted by Esure and Lloyds TSB F R I DAY 30 MAY 8.00 - 10.00 Time to be advised EDUCATIONAL EVENTS Time to be advised The Tayside Financial SFE’s Chancellor’s Business Services Business Breakfast Breakfast at the Roxburghe Aberdeen Financial Services at Discovery Point, Dundee Hotel, Edinburgh Talent Attraction Tour Sponsored by Clydesdale Bank Hosted by Aberdeen Asset Management and Bell Lawrie

12 GLOBAL PLAYER | THE SCOTSMAN SPECIAL REPORT | Wednesday 21 May 2008 Wednesday 21 May 2008 | THE SCOTSMAN SPECIAL REPORT | GLOBAL PLAYER 13 THE CITY VIEW

Cross-pollination serves Scots and English finance firms well Firms still

work well Well planted Th e Sc o t l a n d / Lo n d o n partnership has brought great in union success

and heavily influence the result of by London-based Commercial Union But it hasn’t worked like that, pre- takeover bids, particularly hostile ones. (now Aviva) the following year. dictably. Finance is increasingly glob- Witness the Royal Bank of Scotland’s These swoops by English-based or- alised, with fund managers plugged into Martin takeover of NatWest and ABN Amro (as ganisations, with City backing, for lead- different timezones from America to Eu- part of a consortium); the takeover of ing financial Scottish brand names con- rope to the Middle East and Asia-Pacific. ScottishPower by Iberdrola of Spain; tinued with Lloyds TSB capturing Scottish expertise in fund manage- Flanagan and Scottish & Newcastle’s acquisition Scottish Widows and Scottish Provident ment, broking and banking travels well. CITY EDITOR, THE SCOTSMAN by Carlsberg of Denmark and Heineken going to Abbey National. The head of HSBC’s flagship Asian op- of Holland. It was not all one-way traffic, either. erations, for instance, is a high-flying In all these situations, Scottish fund Royal Bank of Scotland acquired one of Scot, Sandy Flockhart. When Scottish managers such as Standard Life, Scot- the big four English clearers, NatWest, Widows sought a new chief executive of tish Widows, Aegon Asset Management in 2000, fighting off Bank of Scotland in its fund management arm SWIP last and Martin Currie were sedulously the process. year, they poached Dean Buckley from COTLAND’s financial services in- courted by companies wanting to win BoS took consolation the following HSBC where he had been a well-known dustry has always been regarded the takeover day. Or the part the Scottish year by merging with Halifax. And be- City of London mover and shaker for 13 as very important and highly in- fund management community played fore that another English clearer, years. S fluential by the City of London. in supporting Standard Life’s flotation Lloyds, took a big step into Scotland in That followed Widows acquiring This is not just a question of profes- two years ago, despite it involving the the mid-1990s by snapping up TSB blue-blooded London broker Cazen- sional courtesy between flagship finan- controversial ditching of the Edinburgh bank. ove’s five-strong multi-investment cial centres. life assurer’s long history as a mutual. It has all contributed to an increasing- manager team last September, showing Scotland is the second biggest UK fi- It has also been a long time since the ly seamless relationship between the there is a lot of two-way cross-move- nancial centre after London, the latter City viewed the financial services indus- two countries’ financial industries. ment between the City and Scotland in spreading from the Square Mile to Ca- try north of the Border as any sort of fis- Some wondered whether the setting terms of high-flying employees. nary Wharf and the private equity cal Fortress Scotland. up of the Scottish Parliament at Holy- It is good that the Scottish financial strongholds of west London. If they ever did, financial bigwigs in rood under Tony Blair’s constitutional sector’s star remains in the ascendant, We also have one of the 10 biggest fi- London no longer regard Charlotte changes might affect that increasingly for more than just reasons of national nancial centres in Europe north of the Square in Edinburgh and Glasgow’s close relationship between the City and prestige. The sector accounts for about Border, with over £300 billion of funds international financial services district their Scottish counterparts. 100,000 jobs directly in Scotland, and a under management. nestling by the Clyde as ringfenced op- Would the Scots finance establish- further 100,000 or so in back-up areas The latter particularly concentrates erations north of Hadrian’s Wall. ment become more inward-looking, like human resources, IT, legal services City of London minds on why Scottish fi- There has been too much advanta- and less of an influence in wider busi- etc. nancial services needs to be taken very geous cross-pollination for that. Rela- ness matters down south? One commentator said: “There is talk seriously. Put simply, a lot of the oil that tions have become increasingly inter- about some British companies relocat- keeps the Square Mile turning – and mingled between the two centres. South “It’s good that the Scottish ing to lower-tax domiciles such as Ire- bonuses rolling in – is fund manage- England-based Abbey National land. But, in reality, I doubt whether the ment reaction to flotations, rights issues snapped up Scottish Mutual in 1992; financial sector’s star is still Scots financial big hitters would move. and mergers and acquisitions. Scottish Amicable went to Prudential in in the ascendant, for more Even if it did happen, I doubt whether it Fund managers can make or kill a com- 1997; and Perth-based and publicly- than just national prestige” would affect the City’s symbiotic rela- pany’s public float on the stock exchange, quoted General Accident was taken over tionship with the Scottish sector.”

14 GLOBAL PLAYER | THE SCOTSMAN SPECIAL REPORT | Wednesday 21 May 2008

FINANCIAL EDUCATION Skull and judgment: The need to address money matters can be overwhelming

A helpline would be a head start

A trial scheme is paving the way for UK-wide access to free and impartial financial advice

of money worries instead of a comfort- The service would be available to being taken forward by the Financial able and secure old age. everyone, throughout their lives, acces- Services Authority (FSA). Otto For many people, however, money sible via the internet, telephone and The emphasis on financial education matters are confusing and something face-to-face advice. It would be free to in the curriculum, and the FSA’s national they try not to think about – in many the user. It would not sell any products, strategy for financial capability, have Th o r e s e n cases because they don’t know where to but would help people understand their started to address the issue. Financial turn to for impartial guidance. In 2007, options and signpost the next steps. I education in schools is a vital part of im- CHIEF EXECUTIVE, AEGON the government asked me to chair an in- recommended that the service would be proving the UK’s financial capability dependent review looking at how a funded jointly by government and the and AEGON supports work in this area, national service providing people with financial services industry. but we also need to think about how to guidance and information on money I was delighted that the government reach the millions of people whose ELPING people make sense of matters should work in practice. The decided to back the key recommenda- school days are behind them. their finances is more impor- final report was published in March of tion – that a pathfinder scheme should Good money sense needs to be as tant now than ever. Surveys this year and, at the end of my year-long be set up, to test the recommendations much part of people’s lives as healthy H consistently show levels of review, I am just as convinced now as I of the report in a regional trial reaching eating and keeping fit. A national personal debt are at historically high was at the start that the service is some- up to one million people over a period of money guidance service could play an levels and that people are not saving thing that is both wanted and needed by up to 24 months. This initiative is now important part in achieving this goal. enough for retirement. the UK population. Access to financial information is My report recommended that the ser- important because people are expected vice should offer impartial information HOW TO CASH IN - KNOW THE LINGO to take greater personal responsibility and guidance on a wide range of finan- for their long-term financial well-being. cial issues – from helping people learn ALTERNATIVELY SECURED PENSION A way around and buy your annuity from the This is happening in the face of increas- how to budget their income and outgo- of getting income from your pension fund company offering the best deal for your ing turbulence in financial markets. The ings, through to helping them under- after age 75 without buying an annuity. circumstances. credit crunch is never far from the stand the different types of financial ANNUITY Converts money from your pension POOLED INVESTMENTS A way of putting headlines and people are asking more products available on the market, and fund into a series of fixed payments made at contributions of various amounts from lots of questions than ever about what to do where to go next to take action. It would regular intervals until you die. people into a single investment fund. with their savings and mortgages. not be a crisis service, but a preventative INVESTMENT TRUSTS A pooled investment. TAX-FREE LUMP SUM A one-off lump sum of Last summer, severe flooding in parts service which would help people think money you can take from your pension fund of the country affected people’s lives positively about their finances. You buy shares in a company that invests in other investments. It has shares and is quoted tax-free. and livelihoods fundamentally. Now on the stock exchange. The number of shares UNIT TRUSTS A pooled investment that gets more than ever, the consequences of available is fixed. bigger as more people invest and gets smaller making bad decisions about our money “I am convinced that the when they take money out. ISA A tax-efficient way of saving or investing or failing to make the right preparations service is something that is UNSECURED PENSION Allows you to draw for the future can be grave. In particular, money with limits on how much you can pay in both wanted and needed by each tax year. an income from your pension fund up to age now that people are living longer, bad 75 while leaving the rest of the fund decisions could mean a retirement full the UK population” OPEN MARKET OPTION The right to shop invested.

16 GLOBAL PLAYER | THE SCOTSMAN SPECIAL REPORT | Wednesday 21 May 2008

SMALL NUMBERS

Anthony Harrington discovers that Scottish schools are taking great steps by teaching financial skills Learning to play numbers game

ANY Americans are proficient explains, Scotland stole a march on the and active investors, regularly rest of the UK when it published guid- buying shares and trading via ance for schools on financial education. M the internet. In Britain, those This was back in 1999. There is now a of us who bother to save all too often fully fledged programme, called the leave our money in low-interest bank National Strategy for Financial Cap- accounts. We get into too much debt too ability in Scotland, and, as Lally notes, easily and too many of us completely ig- thousands of Scottish pupils have is all about making the best use of the an enthusiastic supporter. “We work nore the fact that we could be retired for already received a very reasonable financial resources at your disposal. with RBS on a programme called Mon- up to 30 years and that funding a retire- grounding in financial matters. Lally points out that there is nothing eysense that is, in the main, aimed at sec- ment of that length is no easy matter. “The original paper which began the intrinsically “kiddie” about this defini- ondary schools,” says Lally. “RBS also The truth of the matter is that far too whole process was called Financial Edu- tion. “It is a fairly good model of what we support us in delivering continuing large a percentage of the population cation in Scottish Schools, a statement want every citizen in the country to be professional education in financial still has very little financial savvy. This is of position,” Lally explains. Since then, able to master and it is very achievable,” matters to Scottish teachers.” not good when one remembers that the SCFE has taken the idea forward to the he says. SCFE’s other major sponsor has been government is finding it increasingly point where financial education is now Companies have played an important the Financial Services Authority (FSA). difficult to fund an adequate state pen- defined as four, interconnected, mutu- role alongside government and local Standard Life saw an opportunity for it sion and that large numbers could be ally inclusive aspects. These are: finan- councils. In particular, the Royal Bank of to contribute at the primary school level heading for a penurious old age. Howev- cial understanding (covering credit and Scotland was the first sponsor and is still and it too has been working closely with er, a good deal is now being done to debt and financial services); financial SCFE. One of its main programmes is ensure that the next generation of competence (bank reconciliation state- Moneyweek, which aims to engage a adults has more financial sense than the ments, the ability to budget, securing “The truth is that far too whole school in money-related activi- current generation. value for money); financial responsibili- large a percentage of the ties for a week. The scheme was the As Jim Lally, director of the Scottish ty, which is being aware of the effect of brainchild of Roz McEwan, the deputy Centre for Financial Education (SCFE), your financial decisions on yourself and population still has very little head at Dunblane. Learning and Teaching Scotland, others; and financial enterprise, which financial savvy” McEwan was invited by the FSA and

debt; debt they considered educating the next generation. It is money management as part of the manageable until the crunch took essential that we start teaching all Scottish Government’s new It’s school to stear clear of debt hold. Now, householders are having children about money matters, so approach to learning, Curriculum to make difficult decisions about that they will be better equipped to for Excellence. their spending; decisions which avoid these same financial pitfalls We want pupils to be taught how have an impact on everyone living in the future. to manage budgets so that they can THE miserly Scot lampooned in under the same roof, from parents Recently, a UK survey by the be responsible citizens of the jokes is a far cry from reality. Our to teenagers to young children. Association of Investment future. One aspect of this financial generosity is, after all, what The challenge of running a home Companies revealed that more awareness which will strike a attracts many visitors to our and all its subsequent pressures is than half of parents believe their particular chord with many parents shores. not something to be taken lightly, own financial position would be is making young people aware that, Fiona Today, however, in the face of as we can see in disturbing figures healthier if they had been taught in life, they may not always be able the credit crunch, we are perhaps which reveal that record numbers personal finance at school, while to afford things they want. This is a having to live up to our stereotype of adults are seeking debt 93 per cent of teachers and parents key lesson in avoiding the debt trap Hyslop and hold on to those pennies. counselling and voluntary thought personal finance should be and also preparing for the future, The easy-credit society which bankruptcies are rising. taught in schools. particularly in a society where we EDUCATION MINISTER has existed until now has Unsurprisingly, a significant This is why we want Scottish are surrounded by messages that encouraged many adults to get into part of the answer lies in better schoolchildren to be taught skills in reinforce the need for “buying” and

18 GLOBAL PLAYER | THE SCOTSMAN SPECIAL REPORT | Wednesday 21 May 2008 It’s our wealth of experience that makes Scotland so rewarding

grown by 96 per cent, compared to growth of 22 per cent in the economy as a whole. It continues to perform strongly when set against regional and international Jim comparators. In particular, against 29 other countries, Scotland has attained the third highest value of Mather exports per worker and, across the UK, the industry is second only to ENTERPRISE MINISTER London in terms of the share of Gross Value Added (GVA) within the Hop to it Sc o t t i s h regional economy. The success of the financial schoolchildren are SCOTLAND’S highly successful and thriving international financial services industry is made possible learning how things dynamic financial services services industry in Scotland, by the capabilities of the add up in terms of industry makes a significant underpinned by world-class companies operating here, the money contribution to Scottish life. Global infrastructure and universally skills and endeavour of the people Financial Services Week will build recognised as a leader on the global who work in the industry and the on that and help cement Scotland’s stage”. That is the goal we are international reputation of position as a leading centre of the seeking to achieve through Scotland as a great place in which international financial services dialogue, partnership and action. to live, work and do business. industry. FiSAB is a unique collaboration We need to take advantage of the SCFE to help develop a resource that Scottish children’s writers – Carnegie Scotland has a long and between government and the wider new, emerging markets and introduces money and finance to the Medal-winning author Theresa Breslin, distinguished history in financial public sector, industry and the changes in global economies. The primary curriculum. The result was a former stand-up comic Jonathan Meres, services dating back over 300 trade unions which hold a shared industry, therefore, needs to teacher-friendly pack, produced by the rising star Nicola Morgan and Alison years and is one of Europe’s leading ambition to build on Scotland’s attract the best and most talented SCFE and supported with funding and Prince, the well-loved author of more financial centres. RBS, HBoS, outstanding success in financial individuals, and to do so, people in expertise from Standard Life. than 40 children’s books for all ages. Clydesdale Bank (part of the services. Scotland and abroad need to National Australia Group), Lloyds While the industry has a long- understand the breadth and depth The programme contains a series of Drafts of the stories were piloted at TSB Scotland and Aberdeen Asset held reputation for innovation and of the careers available. . practical-themed exercises that have the end of last year, in ten primary Management sit alongside other excellence, we cannot be The current economic climate been woven into the school curriculum. schools in Edinburgh, Glasgow and internationally-recognised names complacent. Emerging markets are magnifies the importance of Global Another initiative by Standard Life in Renfrewshire. Following excellent feed- such as JP Morgan, Bank of New opening up which bring exciting Financial Services Week. Events partnership with both Learning and back from pupils and teachers, the York Mellon, State Street, Standard opportunities, but also substantial held throughout Scotland will Teaching Scotland (LTS) and the Scottish stories were edited and have now been Life Investments and Morgan challenges. We need to make sure showcase Scotland’s strengths and Book Trust, is the On the Money printed and bound in one book called Stanley, all of whom have identified that we are ready to take advantage give firms international the opportunities and advantages a of the first and meet the latter head programme. This financial capability On the Money. opportunities for inward Scottish location can offer. on. investment and the chance to project is based on a specially written Lally points out that so far LTS, with It is not only the names which are The financial services industry attract talent to work in the book of short stories, with some aspect sponsorship from Standard Life, has important but the breadth of is one of the fastest-growing financial services industry. of financial awareness at the core of each handed out more than 27,000 copies of services offered by the range of sectors of the Scottish economy Global Financial Services Week stor y. the book, which has proved a great hit in companies located in Scotland, and contributes around £7 billion to offers a wonderful opportunity to The project involves four well known primary schools. including global custody, asset Scottish gross domestic product. showcase all that the financial servicing, banking, investment Since the start of 1998, Scotland’s services industry and Scotland as a management, software financial services industry has whole has to offer. development and life assurance “having”. Instilling the good habit economics’ will pay dividends on a and pensions. of saving at an early age may sound larger scale when these pupils We fully recognise the key role simple – after all, many of our enter the world of work and apply that financial services play in the parents and grandparents were their financial skills to business. Scottish economy. The First raised only to buy what they could There are some children who Minister chairs the Financial afford – but, in this credit card and already receive financial education Services Advisory Board (FiSAB), a easy loan era, it has perhaps been in school but this is the first time partnership comprising lost. Learning the value of money guidelines on what skills children government, the industry, trade in early years is good should be equipped with have been unions and the wider public sector. groundwork for the rigours of presented in Scotland. That is FiSAB was set up to be the advocate managing a household. because we recognise that, in order for and custodian of the Strategy It is also important that to have a confident economy, it is for the financial services industry young people should be able to essential to prepare children to in Scotland, published in 2005. identify various methods of avoid the perils of the debt trap and John Swinney, cabinet secretary payment but be aware of the be confident consumers of the for Finance and Sustainable Growth benefits and risks of each, such future. That’s something which can and I also sit on the board. as rising interest rates. This only contribute to a smarter and The strategy sets out a vision of new kind of ‘home more successful Scotland. “an innovative, competitive and

Wednesday 21 May 2008 | THE SCOTSMAN SPECIAL REPORT | GLOBAL PLAYER 19 EMERGING MARKETS

The growth of affluence from the east gives banks huge corporate scope

A whole new old world of opportunity

mented the second phase of this reform The flows are driven by high levels of bought Expo Bank in Russia for around which means foreign lenders will soon activity in these emerging market areas, $750m, which gives it a strong presence be able to provide credit cards, mort- with demand emanating from all sec- in both Moscow and St. Petersburg, with gages and wealth management services tors. From the perspective of a bank like around 32 branches in all. In China, the Anthony within the country. Next up lies the scope Barclays, with a strong presence in sub- China Development Bank recently for personal investment products. Saharan Africa as well as in the United bought an equity stake in Barclays and Chinese “mom and pop” investors Arab Emirates and the UK, this adds up the bank is looking to build on this. Harrington have already shown a huge appetite for to a very attractive proposition. Turning to India, Chundra points out AWARD-WINNING JOURNALIST buying equity, and the country’s ap- “We have about 21,000 employees that Barclays Capital has been in the petite for saving is legendary. Between serving about 15,000 corporations and country for some three decades and them, the country’s 1.3 billion citizens about 700,000 current account cus- launched its retail banking service a year hold nearly $2 trillion in personal tomers across sub-Saharan Africa so we ago, in May 2007. The focus there was on savings (source: KPMG Report: Retail have a very focused customer-centric personal accounts and a new range of HE UK’s financial services sector Banking in China – New frontiers). proposition to bring to emerging mar- credit cards and personal loan products is acknowledged as world class, One drawback for foreign banks is a kets,” Chundra says, adding that the for India’s burgeoning middle classes. and many of its key players are new rule which states that the Chinese bank is serious about becoming a major “We are growing at a speed in India that T now looking with great interest arm of the bank has to be locally incor- player in these areas. far outstrips the competition,” he at the emerging financial services mar- porated and entirely independent of the Barclays, for example, recently claims. Demand for personal products kets in China, India and Russia. While all parent. It also has to meet some strin- three economies are quite different, gent capital requirements. But the up they all have an emerging, increasingly side is the ability to offer local currency INDIA KEEPS PERFORMING MIRACLES affluent middle class constituting a services as well as foreign currency ser- large and mostly untapped market for vices. Bank of America, The Royal Bank IN THE light of India’s current 8.5 per cent well the financial system is able to finance annual growth rate, it is still somewhat new ideas, new products and new banking, life assurance, general insur- of Scotland, Deutsche Bank and ING astonishing to recall that in the half-century entrepreneurs,” he noted. India’s reforms in ance, pensions and medical insurance. have all invested substantially in locat- before 1947, there was barely any discernible the financial and banking sector, including The most accessible and important ing in China, showing the extent to economic growth on the sub-continent. the expansion of the capital markets, are well area of China’s financial services sector which they see its potential for growth. In a recent speech, Dr Rakesh Mohan, advanced. New private sector banks have today is retail and commercial banking. Vinit Chundra, managing director of deputy governor of the Reserve Bank of India, introduced much-needed competition into When China joined the World Trade Barclays global commercial projects, emphasised the importance to the Indian the banking sector and the corporate sector Organisation in 2001 it promised to im- says there are tremendous currency “miracle” of sound financial institutions, an has been able to draw on a good flow of plement reforms in the banking sector flows between China and other emerg- environment of low and stable inflation and international funding, creating market-driven the availability of risk capital priced at a level pricing for debt. that would put it on a sound footing and ing markets in Asia. “These trade flows that adequately reflects the opportunity cost The result, he said, has been an excellent create an equal playing field for domes- have stayed robust despite the crunch of lending. performance from Indian corporates, with the tic and foreign banks. and the current jittery economic cli- “The key issue for innovation and growth key parameters, including gross profit and On 11 December, 2007 China imple- mate in the developed world,” he says. in India’s financial sector development is how profit after tax, recording “robust growth”.

20 GLOBAL PLAYER | THE SCOTSMAN SPECIAL REPORT | Wednesday 21 May 2008 across India is booming and Chundra towards the big multinationals like India is highly competitive and Barclays Matthews says. Being customer-centric Step change: As reckons Barclays is the second biggest Barclays, he argues. frequently finds itself there in competi- may require a complete re-engineering western financial issuer of new cards in the country. So far in India, Barclays has pursued tive pitches (the so called “beauty pa- of the whole organisation unless there is institutions have “The Indian middle classes are grow- an organic growth strategy and is deter- rades”) to win debt mandates. “It is very a well developed history of being made tracks into the ing all the time and the wealth market mined to maintain that customer- much a question of grabbing market customer focused. opening markets of there is developing rapidly. A large pro- centric focus, providing a high level of share from others,” he says. In this re- HSBC believes the right way to ap- China, India, and portion of the middle class population service and relying on this and a strong gard, he says Barclays benefits greatly proach the Russian retail market is to Russia, a boom has is now very bank ‘savvy’ and has a great suite of products to create real differen- from being able to draw on its expertise start small, provide the highest possible been experienced in appetite for personal loans, mortgages tial in the market. in the UK, where it has industrial exper- standards, and target what Matthews places such as the and credit cards,” he says. There has also As for the commercial market, Barclays tise in more than 50 sectors. terms “the mass affluent market”. By Mumbai stock been a move away from local banks launched its offering with a focus on sup- Alex Matthews, a director of HSBC in this he means the growing numbers of exchange, above top. ply chain financing, risk management, Russia, is setting up the bank’s retail the Russian middle classes, rather than But old habits die structured finance, and corporate liquid- operation in Moscow and St Petersburg. the extreme high net worth individuals. hard in the likes of “Our studies show that ity management. “Our target was across The strategy, he says, is to do this organi- The Russian “mass affluent” sector is Russia, where the people really want access the spectrum, from the large multina- cally, not through buying a Russian growing at 30 to 40 per cent a year, custom of queuing, tionals through to small to medium sized bank, since HSBC is determined to en- buoyed up by a Russian economy that as at this Moscow to funding. They are enterprises,” says Chundra. sure its ethos of high quality customer- itself is growing at six per cent a year. bank above, is more seriously ‘under-banked’” The commercial banking market in centric service is seen in all aspects of its “The number of Russians earning a rea- entrenched than it is retail banking. “There is almost no tradi- sonable income has moved from 18 per in Britain – and where tion of customer service, such as we cent of the population in 2002 to 61 per the idea of good RUSSIA WELL PLACED TO RIDE OUT GLOBAL CASH CRISIS would recognise, in Russia,” he says. cent last year. This gives you a very customer service is The prevailing ethos, inherited from strong upper middle class segment to still new Pictures: ANDREI GORODILOV, SENIOR CREDIT Another plus, he points out, is that the the country’s communist past, expects aim at,” says Matthews. Re u t e r s /A F P/A P ANALYST AT FIDELITY INTERNATIONAL Russian banking system was far too young to the customer to queue patiently with no In 2001 the average Russian con- Gorodilov points out that while the Russian have got itself embroiled in the sophisticated financial services sector is still in its infancy, muddles of the US sub prime securitisation presumption that there will be a sumer was spending 51 per cent of his or it operates inside a very benign economy. saga. “Mortgages are still less than three per friendly face when they finally get to the her earnings on food. By 2006 that had Russia now has the third cent of GDP in Russia, and the counter. What this means is that even dropped to just 35 per cent, which leaves largest stock of foreign banking industry there is at the where banks do want to raise the level of a surplus. Similarly, in 2000, the country exchange reserves in the world, very beginning of a long customer service, few of the local banks had just 7 million credit cards, but 75 at $500 billion, with a fiscal development curve,” says have any real sense of just how much in- million of them have now been issued. surplus since it exports more Gorodilov. “That relative ternal training and standard setting “Our studies show that people really than it imports. “That is a pretty immaturity has proved to be very healthy situation to be in when fortuitous, and there are very they will have to go in for to achieve a want access to funding. They are one considers the current few areas where the global real change of behaviour. tremendously ‘under-banked’, and only uneasy global macro economic financial crisis is dampening “Doing ‘customer service’ properly one third have a bank account. But that scenario,” says Gorodilov. Russia’s trajectory.” takes time and is complicated,” is changing rapidly,” Matthews says.

Wednesday 21 May 2008 | THE SCOTSMAN SPECIAL REPORT | GLOBAL PLAYER 21 FUND MANAGEMENT

We’re managing just fine in the face of adversity

A decade of change has done one branch of Scotland’s financial sector a power of good

pointing out that “revenue growth has emerged as the sector’s greatest worry”. Some jobs may even be lost, but nowhere near the scale of those losses Martin anticipated in London and elsewhere. cal that the fund management sector is a operating internationally since the Lindsay Gardiner, head of PWC’s bit more optimistic because they are in a 1800s but, in the past decade or so, the Hannan financial services for Scotland, said: miles-better place, profitability-wise, rate of change in the sector here in “What is happening at the moment is than they were five years ago, albeit Scotland has possibly been greater than AWARD-WINNING JOURNALIST that a lot of investors are sitting on cash, things are not quite as good as they were at any previous time, as PWC’s Lindsay so inflows into most of the managers has six months ago. Gardiner explains. slowed down quite significantly. “It is all about looking forward from “The market in Scotland has changed “In some respects, investors are here. If markets continue to fall, there considerably over the past ten years,” ESPITE the gloom surrounding behaving rationally because there is will be a squeeze between costs and says Gardiner. “There has been a real the money markets, it seems uncertainty in the market, but in other revenues, but that’s not a certainty.” polarisation and a lot of takeover appropriate at the start of respects they’re being irrational Yet this blip should not detract from activity so that we have ended up with D Global Financial Services Week because if you think the market is going an overall success story. According to three or four really big asset managers, to hail a sparkling Scottish-based inter- to recover, now is the time to invest in Scottish Financial Enterprise, its invest- some of which are attached to life com- national success story which, perhaps equities. Even within the last few days it ment manager member companies panies, such as Standard Life Investment sadly, only a few people outside of the looks as if the market is stabilising.” employ 13,000 people worldwide and and SWIP, and companies like Aberdeen finance industry really know about. Graham Wood, chief investment offi- manage or control from Scotland nearly Asset and Resolution, which have grown Scotland has a long and proud history cer, equities, at Scottish Widows Invest- £470 billion in funds. Either directly or through merger and acquisition. of success in investment management ment Partnership (SWIP), says: “There through partnerships, Scottish fund “In the middle you have traditional and, despite the recent dip in the global has been a lot of comment about the managers have a presence around the companies such as Baillie Gifford, then finance markets, the leading Scottish weakness in the markets but it should be globe, in the US, in many countries it’s the smaller niche players. The typical members of the profession are confi- remembered that from the point when across Europe and in the Far East – and Scottish fund manager of say, ten years dent about the future. Indeed, they the bear market bottomed in March one of the key themes being addressed ago, doesn’t really exist any more.” expect their sector to outperform others 2003 up to September 2007, most of at the week’s major conference in According to Gardiner, distribution in the finance industry, and as the recent the markets had a tremendous run – Edinburgh is the emerging market for of products is key to the present fund Financial Services Survey from the CBI doubled or maybe even trebled if you investment management in Russia and management market. Asset managers and PricewaterhouseCoopers (PWC) were in the emerging markets. China. are either ‘manufacturers’ who create stated: “Fund managers were the only “The fund management business is all Scottish fund managers have been products which are sold by a third party sector to report that they were more about variable revenues and fairly fixed or they have the ability to distribute the optimistic than in December and are costs, so everybody was in pretty good products themselves. It is all part of a continuing to expand their headcount shape going into the last quarter of last “The typical Scottish fund transformed sector in Scotland, as ag gressively.” year. In the six months to March of this manager of, say, ten recognised by the fact that global Nevertheless, there are immediate year, though, the markets are off finance houses have outsourced work concerns for asset management between 10 and 15 per cent, so some of years ago, doesn’t really to here. companies, with the CBI/PWC survey the gloss has been taken off. But it is logi- exist any more” “The market is much more sophisti-

22 GLOBAL PLAYER | THE SCOTSMAN SPECIAL REPORT | Wednesday 21 May 2008 Foundation making sure you don’t feel isolated

THE Scottish Council Foundation (SCF) annual lecture for 2008 will take place next Tuesday, from 5pm, at the Playfair Library in Edinburgh University’s Old College buildings. Hamish McRae, associate editor of The Independent newspaper, will be giving this year’s lecture, discussing “Scotland’s Place in an Ever More Global World Economy”. The choice of theme reflects the linking of this year’s lecture with Global Financial Services Week. Established in 1997, the Scottish Council Foundation is one of Scotland’s leading think tanks. Politically independent, it provides Under threat Report found a real need to maintain rural post offices Scotland with original analysis on Cash pile Sc o t t i s h the key strategic challenges the asset managers country faces. financial exclusion – for example confidential services provided by control nearly McRae is author, among other those who have little or no financial someone who does not know your books, of The World in 2020, protection, are unbanked or face personal business. All these are £470bn in funds which has been translated into unmanageable debt. shared interests with urban areas. more than a dozen languages. Financial education is one of a But the reality of service provision Among the SCF’s recent reports number of inputs designed to in remote areas means actions of direct relevance to the Global improve financial capability. The need to be adapted to fit local The big players such as SWIP are in Financial Services week is the think OECD recommends member circumstances – such as a ‘pool’ of particularly good shape to face what lies tank’s paper on Financial Capability countries promote financial money advice staff providing ahead, as Graham Wood explains. and Inclusion in Rural Scotland, education to individuals for three services over a larger geographical published in November. Knowledge main reasons. First, countries have area to respect the need for “Once upon a time, companies like of financial inclusion and capability an increasing number of workers anonymity. ours were the investment departments in the UK is drawn mainly from who have to rely on defined The SCF’s latest piece of work is of life assurance companies and there research into low-income urban contribution pension plans and Making Markets Work, looking at used to be a lot more of them,” he says. communities. This study aimed to personal savings for retirement. how different products and “For a variety of reasons, a lot of them address some of the gaps in our Second, consumer debt is at record services can be provided in such a disappeared in the 1980s, but the understanding of how these issues levels, while the deregulation of way as to make them accessible to remainder got their act together in a big apply to rural Scotland. the financial markets has brought low income communities, whilst Fieldwork involved in-depth increased competition for way, such as ourselves, Standard Life, still generating reasonable returns interviews with rural stakeholders customers. And third, while the for private sector providers. Phase Resolution and Aegon. from the public, business and number of financial transactions one of this work was published last “We are in much better shape that we voluntary sectors, as well as 39 that people make is growing, there year and the SCF has just released were then, with very clear processes, residents participating as remains a hard core of individuals the findings of the second phase of good people and very professional members of three Community who are not participating in this work. This phase has concluded management. These companies are still Committees (16 in Islay, 14 in financial systems. that there are more opportunities going from strength to strength, as their Highland and nine in East The recent UK Thoresen Review for private sector providers in low results show.” Ay r s h i r e ) . concluded that it is a question not income communities than they are Financial capability and of ‘if’ but ‘how’ government should currently aware of and that there Wood feels the entire sector, from the inclusion, as well as financial ensure that money guidance is are good examples internationally big operations down to the recently education, have been identified as available to the public, promoting of companies providing services started-up niche companies and those international, UK and Scottish positive changes in individuals’ for less affluent consumers at a which have come in to Scotland from policy priorities. behaviours and offering billions of healthy return on their investment, cated now,” adds Gardiner. “If you went the USA, and not forgetting investment According to the UK’s Financial pounds of benefits to consumers, notably in the financial services back even five years most Scottish asset trusts, are all benefiting from a “critical Services Authority (FSA), a the industry and government. sector. managers were pretty much selling mass“ based largely on the professional- financially capable population The SCF report presents various Key factors include: a rethinking emerges from people who are conclusions for policy-makers and of how providers assess the risk ‘plain vanilla’ equity product, such as a ism in the sector and “the pro-active “better informed, educated and financial service providers. profile of different groups of unit trust investing in UK or global equi- forward looking companies which we more confident citizens, able to Importantly, most of the financial consumers; the use of trusted ties, but now there is much more use of just didn’t have ten years ago”. take greater responsibility for inclusion and capability actions intermediaries to help manage alternative assets, such as derivatives. In summary, as Wood puts it, their financial affairs and play an proposed are not distinctively rural relationships with different client “There never used to be any hedge Scotland has the products and the active role in the market for in nature. The report found a real groups; the introduction of more funds in Scotland but now more and people which investors around the financial services”. need to maintain the following: a flexible ways to pay; and action on more of them are being set up and one or world want and, despite the present Financial inclusion, on the other physical banking and Post Office some of the additional costs faced two people have done very well out of downturn, the industry is in very good hand, is both a process and an presence; free-to-use ATMs; by consumers who choose to pay in outcome, most relevant to those enhanced money advice and cash. private equities and property.” shape for the long term. who experience, or are at risk of, financial education services; and ANTHONY HARRINGTON

Wednesday 21 May 2008 | THE SCOTSMAN SPECIAL REPORT | GLOBAL PLAYER 23