Rathbones Review Summer 2014
Divided opinion Safety first Searching for hard facts in the How Britain learnt from Scottish independence debate the tragedies of the 1980s Easy does it Quantitative easing: is the biggest challenge still to come? Interesting times Why a regional power struggle might benefit both China and Japan Contents
Contents 4 Beyond the rhetoric in the Scottish independence 4 Divided opinion debate Looking for the “known knowns” of Scottish independence
10 Safety first Why the rise of health and safety is a blessing, not a curse 26 17 Irrational exuberance Easy does it What psychology can tell us about our financial decisions
22 Scale of the challenge Is aquaculture a recipe for troubled waters? 26 Easy does it 32 Where next after quantitative easing? A constructive 29 For valour rivalry Captain Noel Chavasse, hero of World War I
32 Interesting times Why a regional power struggle might benefit both China and Japan
36 Live crowdfunding Transforming lives through a new way of charity fundraising
40 Dealing with dementia Confronting a delicate and difficult issue 10 How the UK 44 Vällkommen till Liverpool learnt from the The Investment Director who is also a Swedish consul tragedies of the 1980s
Cover image: grahamhughes.com
2 Rathbones Review www.rathbones.com A word from paul chavasse
Welcome to the summer edition of Rathbones Review
his issue of Rathbones Review leads with an analysis of the Scottish independ- ence debate. The referendum on 18 September could lead to one of the biggest Tupheavals in the history of the United Kingdom. From a business perspective, there has been much conjecture about what impact the referendum – let alone a ‘yes’ vote – is having on UK Plc. We try to cut through the debate and increasingly heated political arguments to uncover the potential business consequences of this historic event.
We also take a look at a series of shocking health and safety failures that took place during the 1980s. Disasters from Hillsborough to the sinking of the Marchioness reflected the inadequate health and safety procedures of the time. Over 30 years on, we assess how these tragic events unfolded and how they helped shape modern day health and safety in the UK.
With the centenary of the outbreak of the First World War nearly upon us, we take time to look back and reflect on an extraordinary young man who was the only solider to win two Victoria Crosses during the conflict. Noel Chavasse, a relative of mine, has an inspiring story that reflects the spirit and gallantry of the age.
I hope you enjoy these and all the other articles in this issue. We put a huge amount of effort into Rathbones Review to make it both relevant and engaging. As always, we appreciate your feedback.
Paul Chavasse Head of Investment Management [email protected]
Editor Connect with Rathbones James Maltin Investment Director @Rathbones1742 If you have any comments on this publication or suggestions in Rathbone Brothers Plc for topics that you would like to see discussed in the future, Rathbone Brothers Plc please do let me know.
www.rathbones.com Rathbones Review 3 Divided opinion
4 Rathbones Review www.rathbones.com Divided opinion
Divided opinion
“Should Scotland be an independent country?” The Scottish referendum question may be binary, but there are other questions that demand further consideration and in most cases the answers are decidedly unclear. As a detailed Rathbones research report identifies, dissolving the union would be much more complicated than people might imagine.
John Henderson, Regional Director, Rathbones’ Aberdeen office
t would be foolish to underestimate the lose the same amount. On the face of it, voting role that national pride will play when the intentions seem to be influenced by the prospect Ireferendum on Scottish independence is of gaining or surrendering £1.37 a day, but the held on 18 September. Both sides have routinely truth is more complex, with voters influenced appealed to sentiment and emotion rather than by the fear of being materially disadvantaged to logic and common sense. The ‘yes’ campaign by one or other outcome. has gathered momentum since the start of 2014 and it is no longer possible to say that the ‘no’ Voters want more hard facts about the impli- lobby will prevail by a comfortable margin. cations of independence. Political and cultural issues undoubtedly have their place, but in the Yet many a debate about independence begins end, when pencil is poised over ballot paper, on a wave of patriotism before crashing against many people will be influenced by the likely economic reality. This seems especially apt impact on their finances and their prospects. in the birthplace of Adam Smith, the father of modern economics, and there is strong The problem, however, is that facts are difficult evidence that Scottish voters are less moved by to come by. It is tempting to recall Donald rhetoric and more interested in the financial Rumsfeld’s comment about “known knowns, repercussions of their choices. As a headline in known unknowns and unknown unknowns”. The Scotsman declared earlier this year, “Vote Yet this cannot excuse the vagueness and hinges on wealth”. evasiveness that have characterised the arguments since the Scottish Referendum Bill A recent ScotCen poll found that 52% of Scots was first put forward in March last year. would opt for independence from the UK if to do so would leave them with an extra £500 a Our report considers the implications of year. Only 15% would vote ‘yes’ if they stood to independence from an investment rather
Planet Holyrood: The Scottish Parliament building in Holyrood, Edinburgh (left), has been hailed as one of the most innovative designs in the UK. Will such praise still be geographically accurate after 18 September? Image: Keith Hunter/Arcaid/Corbis Image: Keith www.rathbones.com Rathbones Review 5 Divided opinion
“ When pencil is poised of disruption in the event of a ‘yes’ vote and benefit Scotland financially – it is difficult to see while the details of secession, including the how UK politicians could justify an increased over ballot paper, currency and EU membership, are negotiated. transfer of value.
many people will be The primary issue is whether an independent Roll out the barrel influenced by the Scotland would be able to balance its budget. This is the macroeconomic question that feeds If an independent Scotland were to face a likely impact on their into all others. Opinion, as might be expected, budget deficit, how might it plug the gap? is starkly divided. Nationalists argue that North Sea oil and gas are the default solution finances and their Scotland subsidises the union, in the main for nationalists, but much depends on the split prospects.” through North Sea oil and gas, whereas of assets between Scotland and the rest of the unionists believe the opposite is true. UK – this would be a source of fierce disagree- ment in the event of a ‘yes’ vote. The Institute for Fiscal Studies has estimated than political perspective. It has no political the long-term structural deficit in the UK More than 40 billion barrels of oil have been agenda and considers only how independence at 0.8% and the deficit for an independent produced since the first North Sea extraction might affect our clients. We concentrated on the Scotland at 4.8%. Given the volatility of oil licences were issued in 1964. It is thought facts and where these were not available, we prices, there could be considerable variability that another 24 billion – sufficient to sustain analysed the various alternatives, considering in the latter figure. These projections make up to 40 years of production – are still to be relevant precedents. assumptions about the share of North Sea oil tapped. Scotland generates more GDP per head revenues to which Scotland would be entitled of population than the UK as a whole if all It confirms that there are far more questions – more of which later. the revenue from North Sea oil is included in than answers. Nonetheless, it makes meaning- the calculations. ful distinctions between what is known and To complicate matters further, it is difficult to what is not. In doing so it aims to provide forecast government spending in an independ- Yet production has steadily declined since its informed and much-needed insights for those ent Scotland. Factors such as defence, foreign peak in 1999 and the richest reserves have on both sides of the vote and, perhaps just as embassies and interest on national debt cannot already been exploited. A recent government importantly, those on both sides of the border. be ascertained at this stage. How much would report into the industry called for more invest- an independent Scotland spend on its army? ment in infrastructure and exploration to make Breaking up is hard to do Would it have a navy? Where would it open the most of what remains, but these compar- embassies? What is Scotland’s share of the UK atively inaccessible supplies might become Scotland has been part of the UK since the national debt? unviable if global oil prices fall. 1707 Acts of Union, and it is impossible to preserve meaningful links for more than 300 Calculating the tax revenue attributable to David Cameron argues that the UK as a years without developing a level of entangle- Scotland is similarly complicated, given that whole is best placed to address this challenge. ment that precludes painless unravelling. many people and companies living or based Alex Salmond advocates establishing a sov- north of the border are taxed elsewhere in the ereign wealth fund, based on the successful A major proportion of Scotland’s business is UK. HMRC data suggest revenue in Scotland Norwegian model that was valued at £471 oriented towards the UK. Using figures for is broadly equal to the country’s population billion last year, to buffer an independent 2012, nearly two thirds of all exports and share of the UK and that the reason for the Scotland from the inescapable volatility of the almost half of oil and gas exports go to the budget deficit is that public spending per head oil price. This is one of the key battlegrounds rest of the UK. Analysing how a “border is markedly above the UK average. Hence the of the secession debate. effect” might develop following independ- claim that the rest of the UK subsidises public ence is extremely difficult, not least because spending in Scotland. Many of the pro-independence pronounce- Scotland’s eligibility for membership of the ments about oil and gas assume that 90% of European Union is so unclear. This imbalance is one of the reasons why an the revenue would go to Scotland. There is independent Scotland would have to pay a risk a legal precedent for this, rooted in interna- Some 45% of the balance of Scotland’s exports premium in capital markets and be scrutinised tional conventions dating back some 40 years, go to the EU and it is similarly hard to predict how by rating agencies with regard to its creditwor- but it is open to interpretation and it seems secession might affect this. All we can say with thiness. In the event of a ‘no’ vote, this could inconceivable that the UK government would any authority is that there will be several years also limit the scope for further devolution to willingly accept such a marginal share.
6 Rathbones Review www.rathbones.com Divided opinion
The waters are further clouded by the to deal with its budget deficit. Much of the Crude calculations Shetland and Orkney Islands. A petition seek- burden could fall on higher-rate taxpayers, ing a referendum on whether these and the but higher rates do not always correlate with Western Isles should separate from Scotland higher revenue. Importance of oil and gas to was recently lodged at Holyrood. The islands Scottish economy could vote to remain part of the UK, which, One response to higher taxation is to relocate. given that the territorial waters around Shet- In the case of an independent Scotland most Exports land and Orkney account for 50% of North of the migration would be to the rump UK. Oil and gas Sea oil and gas production, would seriously Anecdotal evidence already indicates interest £24.4bn damage an independent Scotland’s economy. in property in border towns. If it follows that those workers who are better paid are also Ups and downs more skilled, independence could result in a brain-drain – not an ideal foundation for a What other means of offsetting a budget defi- new nation. cit would be available to an independent All other Scotland if oil revenues were insufficient for Corporation tax is also important. Some £73.6bn the task? Taking into account deficit-to-GDP analysts cite Ireland, whose rate of 12.5% levels, tax revenue volatility and the likely has succeeded in attracting significant inward lower liquidity of the bond market, it is fair investment. This is a zero-sum game – Ireland Falling production to say that an independent Scotland would already offers a base for companies seeking low struggle to convince investors of its ability to tax rates. For UK companies, corporation tax Daily oil and gas production repay its expected debt. would have to be materially lower than in the in barrels of oil equivalent UK to justify moving to Scotland and the UK According to the National Institute of already has the joint lowest rate in the G20. 4.6m 1999 Economic and Social Research, it would have to pay an interest rate premium of between 0.72% All that can be said with certainty is that cor- and 1.65% on the 4.1% long-run average for porates will be planning for every eventuality 1.4m UK 10-year bonds. At the same time, given free and, unlike many other interested parties, will 2013 personal care and nursing care, there will be have contingencies in place by September. upward pressure on public spending, with the However, a ‘yes’ vote will lead to several years National Records of Scotland project calculat- of very difficult negotiations, so there will be ing that the number of people aged 75 and over a significant period of uncertainty for many could rise by 82% between 2010 and 2035. UK companies. Dwindling supplies These projections are not encouraging. Just This is personal maintaining public spending would be an impressive feat. It is likely that an independent For savers and investors, the outlook is less Scotland would have to cut public spending than straightforward. Earlier this year the Insti- and/or increase tax rates – both of which are tute of Chartered Accountants of Scotland profoundly unpopular at the best of times – warned that independence would bring “major uncertainty” over pensions. A ‘yes’ vote would see EU cross-border rules come into effect for 42bn barrels “ North Sea oil existing defined benefit company pensions in produced to date production has steadily Scotland if the pension contributor is Scottish but the pension is domiciled in England (or declined since its peak vice versa).
in 1999 and the richest The problem is that cross-border schemes must 24bn barrels estimated remaining reserves have already be fully funded. Who would be responsible for funding those that have a deficit? The Scottish been exploited.” government has proposed a three-year transi-
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The currency conundrum tion period for schemes to become fully funded, Critics denounce this as pettiness, but UK but this might not be long enough. politicians have to protect their citizens from financial risks in the event of Scottish inde- Self-Invested Personal Pensions (SIPPs) and pendence. According to a UK Treasury report Individual Savings Accounts (ISAs) held on published in May 2013, Scottish banks have platforms outside Scotland would also breach assets worth 1,254% of Scottish GDP, which cross-border rules, as SIPP and ISA adminis- is higher than for Cyprus and Iceland before trators cannot be located in a foreign country. their financial crises. In the event of a Scottish £ It is unclear whether such assets would have banking crisis any bailout would have to come to be moved or whether, subject to no further from outside Scotland: more than likely, to Keep the pound contributions, they would be permitted. These prevent contagion to the UK and the collapse Cheap to implement, are significant concerns, not least in light of of sterling, the Bank of England would have Scotland’s ageing population. to step in. no currency issues for cross-border business The currency conundrum To minimise this risk, it is likely that the Bank of England would demand tight controls and Political opposition in Arguably, the most difficult problem to resolve regulations, leading to the oddity of an inde- x England, ‘foreign’ central is what currency an independent Scotland pendent Scotland’s monetary policy essentially bank control would adopt. It is here that emotion and being controlled by the UK government and economics, pride and pragmatism, clash most central bank, not unlike the German-led violently. Alex Salmond won a mock election at supervision of Greece’s national finances. It is school by pledging to replace his fellow pupils’ difficult to see how this would be acceptable daily allowance of milk with ice-cream. His to Mr Salmond. opponents believe his intended approach to the currency invites a similar risk of meltdown. Monetary uncertainty breeds fear. The failed Czechoslovakian currency union of 1993, Mr Salmond wants to keep the pound, as do which lasted just 33 days, is a bleak reminder most Scots. In February an ICM and Scotland of this. Investors, businesses and consumers Create a new currency on Sunday poll revealed 63% of Scots favour are reluctant to invest, employ or spend if they reaching an agreement to continue using ster- believe currency union is no more than a stop- Fiscal flexibility, monetary ling, with another 9% backing its use in the gap. Ultimately, an independent Scotland would policy freedom absence of any accord. The alternatives are to require a ‘hard’ currency in order to prosper. join the euro, although this could not happen Credibility, costly to immediately, or to establish a new currency. Creating a completely new currency is an x implement alternative to the pound. It should, after all, Monetary union with the rest of the UK (a provide the greatest freedom and flexibility ‘sterling zone’) would be the easiest option in terms of setting monetary and fiscal policy. for UK businesses. Transaction costs would The Scottish Socialist Party and the Scottish be lower, and businesses with offices in both Green Party both support this option. The countries would not be exposed to currency risks, however, are substantial. A new currency risk or have to alter their business practices. would involve high costs – not just in terms of printing money but in terms of setting up € Yet this would only be workable with the a Scottish central bank – and the impact on Adopt the euro shared political and financial institutions business and perception of the currency mar- from which nationalists are determined to kets are very difficult to predict. Established currency, EU separate. Britain’s three main political parties membership have already expressed in the most unequivocal So what of the euro? José Manuel Barroso, terms their refusal to countenance a common the president of the European Commission, currency. “If Scotland walks away from the and Herman Van Rompuy, the president of Political opposition in UK,” warned George Osborne, “it walks away the European Council, have been less than x Europe, ERM II demands from the UK pound.” discreet in questioning whether an independ-
8 Rathbones Review www.rathbones.com Divided opinion
ent Scotland could join the EU, let alone the The 2012 Scotland Act will come into effect Tax spend and contribution euro, with the former cautioning that it would next year, introducing a new land, property 2012-2013 be “extremely difficult, if not impossible” and income tax regime. A ‘no’ vote does not to secure unanimous approval from the 28 mean ‘no change’. member nations. Scottish share of UK population Back to Donald Rumsfeld. There are very few The key question is whether Scotland is already “known knowns” to evaluate independence. As in Europe. It manifestly is – but as part of our report makes clear, there are many more the UK. If Mr Barroso and Mr Van Rompuy “known unknowns”, but we have considered 8.3% are right, it would have to apply for member- the possible alternatives and used precedents ship as an independent nation. The European and supposition to assess the potential out- Commission insists that any country wishing to comes. To summarise: join the EU has to join the euro. The Scottish government asserts that actual participation in • An independent Scotland would face a Scottish share of UK public the euro is voluntary – Sweden, for instance, budget deficit due to historically has yet to take part – and therefore no such higher-than-average spending. expenditure barrier to EU membership exists. • Depending on how they are split, oil reve- nues would only partly address this deficit In the unlikely event that Scotland did want and oil production is in decline. to join the euro, it would have to meet stringent • The deficit could also be offset by higher 9.3% prerequisites, including demonstrating a history taxes or lower public spending. of macroeconomic prudence in managing its • An independent Scottish government would own currency. It could not join the euro imme- need credible macroeconomic policies. diately, so the problems of keeping the pound • None of the options regarding currency or creating a new currency outlined above still would be straightforward. Scottish contribution to UK tax apply. • Personal pensions and other investments revenue excluding North Sea would be affected by EU cross-border rules. Even allowing for the economic challenges, an • Savers might have to move assets such independent Scotland is likely to struggle to as SIPPs and ISAs to avoid breaching gain the required support for its EU member- cross-border regulations. 8.2% ship from some existing members. Countries such as Spain have come to see the Scottish ref- The above might sound to some like a mani- erendum as a barometer for their own secession festo for the ‘no’ campaign. It is not. It merely Scottish contribution to UK tax issues and their governments will be reluctant reflects the uncertainties and challenges of inde- revenue including North Sea* to support independence. pendence, and the lack of hard facts. This is the key point about ScotCen’s aforementioned The great unknown poll: voters might be influenced by whether they stand to gain or lose £1.37 a day, but 9.1% Whatever the outcome, 18 September 2014 no-one can tell them for sure if they will. The will be a momentous day in the history of “unknown unknowns” are legion and will * Based on Scotland’s geographic share of North Sea revenue Anglo-Scottish relations. The most likely out- remain so until the ballot boxes have been come is still a ‘no’ vote, but it will be far closer emptied. than most people thought even in January and Amount per head above UK it would be dangerous to underestimate Mr Rathbones’ research report on Scottish average spent on Scots according Salmond. independence can be downloaded at: to HM Treasury bit.ly/rathbonesreport_scotand Even a ‘no’ vote could lead to further devolu- Alternatively, please ask your investment £1,364 tion – the latest Scottish Social Attitudes survey manager to send you a copy. shows this is favoured by up to 60% of the Amount according to Scottish population. Many people do not seem to realise government that even without this there will be change. £1,267
www.rathbones.com Rathbones Review 9 Safety first
Safety first
Health and safety has come to be regarded as a curse of modern life, with many of the benefits taken for granted, underappreciated or resolutely ignored. Yet if we look back to the 1980s, when an unprecedented series of tragedies left nearly a thousand people dead, we realise how far we have come.
Greg Mahon, Regional Director, Rathbones’ Chichester office
t is not especially hard to understand why popular By the mid-1980s, by any standard, Bradford City’s Valley opinion regarding health and safety is dominated by Parade stadium was antiquated. Simon Inglis, a historian Iderision and contempt. In the eyes of its most determined specialising in sports and architecture, likened the view for critics, health and safety is a laughing stock, an object of spectators to “watching football from a Sopwith Camel”. scorn, something to be derided, denounced and disregarded. The main stand was made from wood and had remained essentially unaltered since the First World War. It was neither But is this really a fair assessment? There is a strong case for charming nor quaint. It was dangerous. arguing that we should be able to see beyond the ridicule and the rejection and instead consider the broader and The Health and Safety Executive (HSE) pointed out as altogether more positive implications. much in 1981, warning that piles of litter that had been allowed to accumulate beneath the timber structure could Imagine a society in which even the most everyday activities constitute a fire hazard. The county council echoed the could carry a wholly unnecessary level of risk. Imagine sentiment in 1984. The club had the money to implement a society in which something as simple as using public improvements, but most of its turnover was spent on transport, going to work or even attending a sporting assembling a promotion-chasing side. event could very well culminate in serious injury or death. On 11 May 1985, the final day of the season, 56 people We were that society. And it wasn’t so long ago. died when the stand became engulfed in flames. A discarded match or cigarette slipped through one of the ……………………………………………………………… many gaps in the floor, and the litter did the rest. Survivors
10 Rathbones Review www.rathbones.com Safety first
Image: Tom Stoddart Archive/Getty Images
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later reported wondering why their feet were getting warm. Britain witnessed a series of The inferno beneath them, fanned by high winds, spread major disasters in the 1980s. to the bitumen-and-tarpaulin roof above them within min- 1985 utes. Costing almost a thousand lives, they laid bare how A copy of the Bradford Telegraph and Argus was later deficient health and safety discovered among the charred debris. It was scorched, had become. but the date of publication was still visible: 4 November 1968. There, in the singed pages of a pre-decimalisation newspaper, was genuinely pathetic evidence of the long- standing neglect and apathy that eventually led to the loss of 56 lives. Valley Parade was a monument to inertia.
The tragedy provoked outrage, yet it was to prove only the first of many. By the end of the decade an unprecedented series of catastrophes had claimed nearly a thousand lives and shed damning light on a fundamental lack of investment and expertise in health and safety. Almost every one of them has since become so synonymous with disaster that its name alone is sufficient to remind us of its infamy. Manchester Airport, the Herald of Free Enterprise, King’s Cross, Piper Alpha, Clapham Junction, Lockerbie, Kegworth, Hillsborough, the Marchioness – this was Britain in the mid-to-late 1980s. 11 May Bradford City stadium fire ………………………………………………………………… Flames engulfed the antiquated main The Institution of Occupational Safety and Health (IOSH) stand at Valley Parade after a discarded is the world’s largest health and safety membership organ- match or cigarette slipped through the isation. Founded in 1945, it is the only chartered body wooden floorboards. The tragedy led to for health and safety professionals. It trains more than new safety standards for football 130,000 people a year. grounds. 56 fatalities
Professor Robert Dingwall, director of IOSH’s ‘Health and Safety in a Changing World’ research programme, believes the tragedies of the mid-to-late 1980s were the products 22 August of a “perfect storm”. “There’s a parallel with a wave of Manchester Airport fire catastrophic accidents in late Victorian England,” he says. “There was the same combination of technologies being Passengers were trapped when a Boeing stretched to their limits and a difficult economic climate 737 caught fire near the runway. The for firms to invest in. incident prompted landmark recommen- dations on evacuation procedures and “In many instances it wasn’t necessarily a case of cutting flame-resistant materials. 54 fatalities corners: it was more a case of the technological envelope being pushed and there being insufficient resources to keep pace with that. The ’70s left a legacy of cuts in maintenance Images: Hulton Archive/Stringer/Getty Images, Keystone/Hulton Images Images: Hulton Archive/Stringer/Getty Archive/Getty
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and investment. It was an unusual set of circumstances. The issue of health and safety crept up on people without 1987 them noticing.”
The picture had appeared considerably more promising in the 1960s. The landmark Offices, Shops and Railway “ The tragedies of the mid- Premises Act, passed by Parliament in 1963, was intended to-late 1980s were the to extend the protection of workplace health, safety and welfare – initially granted under the Factories Act 1961 products of a perfect – to a far greater range of employees, including those in storm.” service industries. “It exposed a genuine scandal about low-level condi- tions,” says Professor Dingwall, a specialist in sociology 6 March and organisational theory. “Take the railways. There were Herald of Free Enterprise sinking rural signal-boxes where sanitation amounted to a bucket and a shovel and the only warmth came from a paraffin The British-owned vessel capsized minutes after heater that gave everyone a headache. There were stations leaving Zeebrugge. Poor communication was without anywhere for staff to wash their hands or eat and blamed for the disaster, which led to major with no heating in the winter. changes in roll-on/roll-off ferry design. 193 fatalities “The idea was to move beyond such anachronisms and bring the whole of British industry within a framework that would improve workforce conditions, enhance employee happiness and therefore increase productivity. And this was welcomed. That was certainly the attitude for much of the ’60s and the early ’70s.
“But by the ’80s a counter-narrative had definitely emerged. It was felt that health and safety imposed extra costs, that smaller companies and entrepreneurs were being told what to do rather than being left to make their own decisions, that people should be allowed to take risks if they wanted to and so on. Those perceptions are still with us today.”
One of IOSH’s current research projects is entitled ‘The Changing Legitimacy of Health and Safety’. By analysing a variety of sources – including newspaper and broadcast archives and the records of the HSE, the Factory Inspec- 18 November torate, the Trades Union Congress and numerous labour King’s Cross fire organisations – academics hope to develop a fuller under- standing of why attitudes have shifted so dramatically. The blaze began in an escalator and spread after flashing over. An inquiry revealed many London There can be little doubt, of course, that a key contrib- Underground staff had never been utor has been the “can’t do” philosophy that provides trained to deal with a fire or handle an evacuation. 31 fatalities Images: Bryn Colton/Hulton Archive/Getty Images, Graham Trott/Associated Newspapers/Rex Features Images: Bryn Colton/Hulton Images, Graham Trott/Associated Archive/Getty
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such easy fodder for the media in particular and health and safety’s naysayers in general. Tales of trapeze artists being forced to wear hard hats, graduates being ordered 1988 not to hurl their mortarboards in the air and candy floss on sticks being banned for fear of passers-by tripping and impaling themselves have sustained the stereotype of the barmy bureaucrat.
The HSE has dismissed many of these alleged intercessions as myths. The truth, it says, is that not one is rooted in health and safety law. IOSH endorses this view. “There are people who say no to everything,” says Professor Dingwall. “For them, unfortunately, health and safety has become a convenient alibi. But health and safety isn’t about creating problems: it’s about solving them.”
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In the early hours of 20 August 1989, near Cannon Street 6 July Railway Bridge on the River Thames in London, the Piper Alpha Marchioness pleasure cruiser and a dredger, the Bowbelle, collided. Fifty-one of the 131 people aboard the Marchioness explosion and fire drowned. It was the last of the high-profile tragedies that Safety and maintenance punctuated the second half of the decade. procedures were severely criticised after the worst-ever As in so many of the incidents, human failings were a offshore oil disaster in terms significant factor. A government-ordered investigation of lives lost. More than 100 recommendations followed. 167 fatalities
“ Health and safety isn’t about
Images: Christopher Pillitz/Photonica World/Getty Images, National Archives Images: Christopher Pillitz/Photonica World/Getty creating problems: it’s about solving them.”
12 December 21 December Clapham Junction rail Lockerbie bombing crash The deadliest terrorist atrocity Three trains collided after a ever to occur in Britain signal failure caused by faulty highlighted potential security wiring. An inquiry made 93 failures at many major recommendations after finding airports, including in the UK. the technician’s working 270 fatalities practices had never been questioned. 35 fatalities
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criticised both vessels’ lookouts and highlighted the poor training and monitoring of crew members. The captain of 1989 the Bowbelle later admitted to drinking five pints of lager during the afternoon before the collision and to forging signatures on documents to secure his master mariner’s certificate of competency. 8 January
Kegworth air crash The academic world has a term for an organisational British Midland Flight 92 crashed next to situation in which bad habits become accepted: the normal- the M1 while trying to land at East Midlands isation of deviance. It was coined by American sociologist Airport. New safety and emergency Diane Vaughan in her study of NASA’s ill-fated decision instructions for passengers were introduced to launch the Challenger space shuttle on the freezing-cold as a result. 47 fatalities morning of 28 January 1986.
Normalisation of deviance tends to flourish where commu- nication is lacking. Individuals have to know what their own role is and, just as importantly, how it relates to the roles of others. It is not just a question of sharing responsibility: 15 April it is a question of sharing knowledge. Hillsborough disaster
Catastrophic overcrowding led to tragedy “One of the things we’ve got much better at is understanding during the FA Cup semi-final between how we interact,” says Professor Dingwall. “We appreciate Liverpool and Nottingham Forest. Standing that the people responsible for the individual elements of a terraces at UK football grounds were duly system can’t operate in isolation. It’s imperative that they abolished. 96 fatalities talk to each other. If the right people don’t talk to each other – well, that’s when you have a problem.”
Professor Justin Waring, a Professor of Organisational Sociology at Nottingham University Business School and a leading researcher in the field of knowledge-brokering, agrees. “We live in a risk society,” he says, “and the fact of the matter is that most risks aren’t like smoking, where you and you alone make the decision and pay the price.
“If we look at the rail industry we see there was an enormous fragmentation of responsibility in the wake of privatisation. In a case like that, with different stakeholders serving their 20 August own political, business and institutional agendas, there’s Marchioness sinking often only a narrow response to safety. The companies Poor training was blamed after a pleasure that run the trains, the teams that maintain the lines, the cruiser and a dredger collided on the Thames drivers, the people who look after the safety management in the early hours of the morning. An inquiry systems – ensuring effective cooperation and coordination criticised the lookouts and their supervisors. between all these groups is a key challenge for regulators. 51 fatalities “In the end it comes down to communication. Even today we find gaps between the person who assesses a risk, the person who takes that risk and the person who suffers the consequences. That’s really what health and safety is about – bridging gaps.” Images: John Downing/Hulton Images, Christopher Furlong/Getty Images News/Getty News (UK) Archive/Getty Features Ltd (TDY)/Rex
www.rathbones.com Rathbones Review 15 Safety first
Investing in safety By John McDougall, Research Analyst, Rathbones “ Ultimately, the As well as saving countless lives, the dramatic Other long-term success stories include Intertek objective of health improvement in UK health and safety standards Group, a multinational inspection, product has been very positive for many UK companies, testing and certification company, and Halma, and safety is that which have led the way in developing innovative which is the parent of a group of companies everyone gets to health and safety equipment and systems. that make products for hazard detection and life protection. go home at night. Smiths Group (which was known as Smiths Industries until 2000) has a long history of As health and safety standards have started to When you really pioneering safety-related products for the improve in other parts of the world, these think about it, motor, aircraft and medical industries. One of companies have performed strongly. They are its divisions, Smiths Detection, produces airport widely owned at Rathbones, which is another our success in scanners and is a world leader in the design reason to be grateful for the improved standards and manufacture of sensors that detect and in the UK following the dark years of the 1980s. this regard is identify explosives, weapons and drugs. This extraordinary.” is the frontline of the battle against terrorism.
Health and safety’s benefits are easily overlooked. Some- In the space of a quarter of a century Britain has times they are flat-out ignored. In essence, as with so many arguably gone from dilapidated death-trap to world things, we hear only about the negatives – which, as we leader. Allowing for the inevitable differences in speed have already seen, can more often than not be traced back and scale of response from one industry to another, this to a warped and deliberately erroneous misapplication of has been achieved discreetly and efficiently. The transfor- overarching legislation. Maybe because they have become mation has been remarkable and has not gone unnoticed so commonplace, so assumed and expected, the myriad elsewhere: our expertise in health and safety is now one advantages go unnoticed. of our major exports.
“Historically, health and safety tended to be an add-on,” As Professor Dingwall notes: “Ultimately, the objective says Professor Dingwall. “You came up with the technology of health and safety is that everyone gets to go home at and then asked about the health and safety. The modern night.” When you really think about it, our success in this approach is to bring health and safety in at an early stage, regard is extraordinary. which allows it to solve problems rather than create them – and once a problem has been solved, of course, you tend Yes, maybe we are occasionally delayed or frustrated more not to hear much about it. than we would like. Maybe we see the concept taken too far now and then. Maybe we have to pay a little extra in “The Olympic Park is a classic example of how far we’ve fares to fund the systems that prevent roll-on/roll-off ferries come. The aim was to build it without a single fatal from setting sail with their bow-doors still open or to stop accident. Health and safety was a cornerstone of the project trains smashing into each other because of wiring faults. from the outset, and the aim was achieved. But the thought of another Valley Parade is inconceivable. “Compare that with the preparations for the World Cups The notion of a football stadium burning to the ground, the in Brazil and Qatar, where we regularly hear of accidents flames stoked by a bed of detritus that has gone untouched involving construction workers. It wouldn’t even be accurate for nigh on 20 years, is anathema. And that has to count to compare Qatar’s situation now with our situation in the for something. 1980s. Health-and-safety-wise, Qatar now is more like late Victorian England – it’s like the Irish navvies building the railways. The fatality rate is appalling.”
16 Rathbones Review www.rathbones.com Irrational exuberance
Irrational exuberance: the role of psychology in financial markets The field of behavioural finance uses psychological theories to explain the processes that underpin many of our financial decisions. It is increasingly shaping how the investment world is viewed and understood. A grasp of some of the basic ideas – chief among them the notion that some of our choices might not be as rational as we first imagine – is useful to any investor.
James Maltin, Investment Director, Rathbones Investment Management
“We denounce with righteous indignation “Men think in and dislike men who are so beguiled and demoralised by the charms of pleasure of the herds and go moment, so blinded by desire, that they cannot foresee the pain and trouble that are bound to mad in herds.” ensue.” – Marcus Tullius Cicero, On the Ends of Good and Evil (45 BC)
In his speech of 5 December 1996 entitled ‘The Challenge of Central Banking in a Democratic Society’, Alan Greenspan, then Chairman of the US Federal Reserve, delivered a warning that the stock market was overvalued. His use of two words in particular – “irrational exuberance” – precipitated sharp falls in stock markets around the world.
www.rathbones.com Rathbones Review 17 Irrational exuberance
The Nikkei dropped 3.2%; the Hang Seng lost 2.9%; and The theory rests on two major foundations: limited arbitrage the FTSE 100 and German DAX were both down 4%. and investor sentiment. The first of these, which refers to When the US markets opened the next morning, they too the fact that prices do not instantaneously converge to suffered steep falls. However, these falls were only a blip fundamental values, need not concern us here. Investor on the graph of a rising market and prices soon resumed sentiment on the other hand is a fascinating field, as relevant their upward trajectory. This was the beginning of the in Cicero’s time as it is today, and applicable to all walks of dotcom boom and the technology-heavy NASDAQ rose life, not just financial markets. It concerns human nature. 50% per year over the next four years for a total gain of 463% to levels which, in the aftermath of the dotcom crash, Psychologists Amos Tversky and Daniel Kahneman have seemed sheer lunacy. identified three core patterns of irrationality in investors’ behaviour1. These are that we judge people based on What Cicero would have made of the frenzy that gripped stereotypes; we assess the likelihood of events happening the market 2,000 years after his time, we can but based on our ability to recall similar events; and we tend wonder. He is unlikely to have been impressed and, with to make decisions based on some arbitrary starting point. the benefit of hindsight, neither should we be. If the stock These are respectively termed the representative heuristic, market is a methodical mathematical machine, which at availability bias and anchoring. A fourth can be added, any given time presents accurate share prices determined namely Ward Edwards’ Conservatism in Human by a rational appraisal of the value inherent in companies, Information Processing (1968), which shows we are slow then why should the rhetoric of a central banker affect to change our beliefs in the face of new evidence. share prices? Collectively these patterns derail our attempts to rationalise “Behavioural finance may most things, including investments. All of these are relevant to investing simply because the future is uncertain. Much be described as the study as we might want to know what the stock market is going of human fallibility in to do tomorrow, and much as our clients might want us to tell them, the fact is we do not know. There is no chance competitive markets.” of being able to tell with any degree of certainty whether the market will be up or down, let alone by how much. In For any investor, these are important questions and under- spite of the latter-day seers, soothsayers and economists who standing the answers will be necessary if we are to avoid claim to divine the future, the future remains uncertain. It further follies (which collectively we will not, but indi- is because of this that heuristics are so powerful. Heuristics vidually we may). Many of the answers are to be found are simple rules that govern our judgment. We use them to in psychology, in the thoughts and feelings of those who speed up our decision-making. Given that understanding invest in financial markets – or, as academics like to call heuristics could make us either extremely rich or pitifully it, in behavioural finance. poor, should we not at least know what they are?
A relative newcomer in the field of finance, with origins in The representative heuristic is used for categorisation. We the lecture theatres of the University of Chicago’s Booth find patterns in truly random sequences. When a company School of Business, behavioural finance uses psychology to has a consistent history of earnings growth over several explain stock market anomalies and, more generally, may years, accompanied by enthusiastic descriptions of its be described as the study of human fallibility in competitive products and management, investors might conclude that markets. Preceded by Professor Eugene Fama’s Efficient this history is representative of an underlying earnings Markets Hypothesis of the 1960s, which asserted that growth potential. While in reality the ‘pattern’ of high the informational efficiency of markets means one cannot earnings growth may be nothing more than a random draw consistently achieve returns in excess of the market’s return, for a few lucky firms, investors see order in the chaos and behavioural finance postulates that human intelligence extrapolate the growth trajectory ad infinitum, categorising creates behavioural patterns that cause us to act irrationally, the company and its management under an elite club of often against our own interests. superstars. Disregarding the reality that a history of high
18 Rathbones Review www.rathbones.com Irrational exuberance
earnings growth is unlikely to repeat itself, the company’s shares become overvalued, disappointing investors when Can bias be avoided? the forecasted earnings growth fails to materialise. The uncomfortable question behavioural finance poses for Availability bias operates on the notion that if something a professional investment manager is that if bias is innate can be recalled, it must be important and results in us and sub-conscious, can you avoid it or is it constantly attributing far greater weight to recent experience than to undermining your investment decisions? Clearly, there is more historical information. As an example, people prefer a degree of bias in all human decision-making, but it is to buy shares after they have risen and shun them after possible to lessen its influence. significant price falls. As the stock market rises, we want to participate – ‘blinded by desire’ - and this desire drives The first defence against bias is awareness – if you accept prices higher, which in turn increases desire. This leads that you are susceptible to bias and understand the effects to momentum trading and positive feedback investment of particular biases, you can make a conscious effort to strategies, at which George Soros was very successful. As override these effects. This is more effective if you work described in his book The Alchemy of Finance (1987), in a team as an individual’s propensity to certain patterns over three decades he generated average annual returns can be identified and challenged by colleagues. of more than 30%, betting not on fundamentals, but on future crowd behaviour. At Rathbones, we also have other checks and balances to limit biases. Our investment process applies a rigorous This bias explains how the dotcom frenzy could feed off and objective methodology towards asset allocation and itself. To many investors in the late 1990s, technology shares consciously limits the influence of backward-looking data. could only go up. It was inconceivable that shares might With support from our research team, the various bond, lose 99% of their value, although that is precisely what stock and alternatives analysts identify investments to happened – the peak-to-trough decline in the NASDAQ recommend to investment managers. This collegiate was more than 80%, with many companies disappearing approach brings together the investment experience of altogether. the whole firm, helping to override individual biases.
The process gives individual investment managers a rigorous framework to guide their thinking without resulting in the disenfranchisement of centrally-driven models. Instead, investment managers use their expertise and knowledge of their clients’ objectives to manage portfolios on a truly bespoke basis with space to think and be imaginative in their approach to investing. This reduces the risk of ‘groupthink’ and encourages a plurality of views.
Bias cannot be avoided entirely (even where computers make decisions, these are subject to human biases inherent in modelling and programming), but with a strong invest- ment process and an open mind to input from colleagues, it is possible to limit its negative effect.
www.rathbones.com Rathbones Review 19 Irrational exuberance
Anchoring describes the tendency to rely too heavily on the first piece of information we receive in making subsequent Game theory judgments. A good example of this is bargaining, where Game theory is the study of strategic decision-making. In recent the initial price for selling sets the level for negotiations. decades it has become widely recognised as an important tool The purchaser may feel good about the transaction, having in many fields – including economics, where theorists use it beaten the price down to significantly below that level, to identify “optimal” decisions in stylised games of strategy. even though the eventual price paid may remain materially Behavioural economists conduct experiments to test whether above the true value of the object. real people actually behave in line with theoretical predictions. There are two types of psychological anchor: quantitative There are a number of classic games, each revealing differences anchors and moral anchors. Quantitative anchors indicate between theoretical predictions and actual behaviour and raising appropriate levels of the stock market, suggesting whether questions about whether people are behaving “sub-optimally” or the market is over- or undervalued and whether it is a whether there is something amiss in the theory of “optimality”. good time to buy. Moral anchors determine the emotional strength of the reason that compels people to buy stocks, Try the following game yourself before reading the comments weighing the argument for investing against an individual’s of Professor Chris Starmer, who is director of two of Europe’s wealth and their perceived need for money to spend now. largest behavioural economics research organisations: the Network for Integrated Behavioural Science, an international In making quantitative judgments about the level of stock initiative led by the Universities of Nottingham, Warwick prices, the most likely anchor is the most recently remem- and East Anglia; and the Centre for Decision Research and bered price. However, much of the human thinking that Experimental Economics, based at the Nottingham School of results in action is not quantitative, but instead takes the Economics. form of storytelling. Such reasoning is not well described by economic theory and it is this thinking that results ultimately in what one owns being worth what someone else is prepared to pay for it, be it a house, a car, a piece of artwork or a share in a company.
While Cicero might mock us for the excesses of the dotcom “ One thing is certain: bubble, we can take comfort from the knowledge that we are not the most stupid generation ever to inhabit the earth. our financial decisions Throughout history people have been unable to see the are shaped by much future and have been blinded by their desires about what lay ahead. The oddities of our age are peculiar to it, but more more than purely in detail than extent for human folly changes only in detail, not scale. Human nature has not changed – our behaviour rational thought.” and that of the Romans are shaped by the same factors.
As Charles Mackay put in his excellent anthology of human fallacy, Extraordinary Popular Delusions and the Madness of Crowds (1852): “Men think in herds and go mad in herds, while they only recover their senses slowly, and one by one.”
1 Amos Tversky and Daniel Kahneman identify these three core patterns of irrationality in the papers Judgment under Uncertainty: Heuristics and Biases (1978) and Prospect Theory: An Analysis of Decision under Risk (1979)
20 Rathbones Review www.rathbones.com Irrational exuberance
The ultimatum game
This game involves two players. The first is given a sum of accept any positive amount. The first player will therefore offer money – say, £10 in £1 coins – and must propose a share of it the smallest amount available. Hey, presto! to the second, who can accept or decline. But so much for theory, because it turns out that very few people The money is shared as agreed if the proposal is accepted, but consider offering the absolute minimum, let alone accepting it. neither player receives anything if the proposal is rejected. Most proposals are pitched somewhere between a third and a half, and it is by no means unusual for those of less than a This is one of the simplest and in many ways most revealing third to be turned down. In other words... games in experimental economics. A: “Hey, someone has just given me £10. Would you like £2.99 The theoretical prediction for this game is that the first player of it?” will make the smallest possible offer to the second – £1 in this case – and the second will accept. B: “Get lost.”
By the same token, imagine the £10 is in pennies. The first player How irrational is that? would offer 1p – and, again, the second player would accept. Is it altruism, a fear of rejection or a sense of fairness Why? Well, game theorists usually assume that both players that influences the proposers? Are those who reject offers prefer more money to less – that they care only about their own blinded by outrage or driven by spite? There are many pay-offs and want to make them as big as they can. potential interpretations, but one thing is certain: our financial decisions are shaped by much more than purely On that basis, the first player will predict that the second will rational thought.
Illustrations: Laura Wells www.rathbones.com Rathbones Review 21 Scale of the Challenge
Scale of the challenge
A new World Bank report estimates that by 2030 nearly two thirds of the seafood eaten in the world will be farm-raised.
The World Bank sees aquaculture – already a $60 billion global industry – as a valuable way of creating jobs in Emerging and Frontier Markets. It also sees it as playing a vital part in global economic security, helping satisfy the demand for affordable food protein from a growing world population.
But the World Wildlife Fund (WWF) warns that increasing the productivity of the world’s oceans through aquaculture is not as simple as it may sound. Farming dense populations of fish in large cages can present challenges and unintended consequences.
The World Bank’s report can be downloaded at: bit.ly/wbaquaculture
The World Wildlife Fund’s comprehensive overview of sustainable seafood can be found at: bit.ly/wwfaquaculture
22 Rathbones Review www.rathbones.com Scale of the challenge
Image: Dave Fleetham/Design Pics/Corbis
www.rathbones.com Rathbones Review 23 Scale of the Challenge
Current annual fish consumption of the world’s 10 most populated countries and the UK UK
Plates represent population, fish represent total fish 62m population Russian consumption. 1.2m tonnes Federation Sources: Food and Agriculture Organisation of the United Nations; Fish to 2030: Prospects for Fisheries and Aquaculture, World Bank
USA China 310m population 1.3bn population 6.7m tonnes 44m tonnes
Brazil
Nigeria Japan 127m population 6.9m tonnes
Pakistan
Indonesia
Bangladesh
India 1.2bn population 7.8m tonnes
24 Rathbones Review www.rathbones.com Scale of the challenge
Estimated global aquaculture production
Other 2030 production Japan China Middle East & North Africa 94m tons Latin America 2010 production 2030 Other South Asia Europe/Central Asia 58m tons
Source: Fish to 2030: Prospects for Fisheries India 2010 and Aquaculture, World Bank
SE Asia
Problems WWF associates with poorly managed aquaculture
Chemical inputs: Lead to excessive use of Nutrient pollution: Excess food and fish antibiotics, anti-foulants and pesticides. waste increase nutrient levels, reduce oxygen and stress aquatic life. Disease: Viruses and parasites transfer to wild species and from farm to farm. Feed: Often more fishmeal and fish oils from natural stocks are used to feed farmed Escapes: Pool of genetic diversity altered fish than the farm actually produces. when escaped farmed species interbreed and compete with local wild stocks.
Image: Visuals Unlimited/Corbis
www.rathbones.com Rathbones Review 25 Easy does it
Easy does it
In the next year or so, we will find out if one of the biggest economics experiments of all time has worked or whether it is possible to end the experiment without negative consequences.
Julian Chillingworth, Chief Investment Officer, Rathbones
In December 2013, the US Federal Reserve 1980s. In 2001, in spite of saying only a (Fed) announced it was reducing its monthly month earlier that QE would not work, the asset purchase programme from $85 billion BoJ flooded Japanese commercial banks with to $75 billion. Further reductions (‘tapering’) excess liquidity in an attempt to promote have followed and it is likely that asset lending. Over four years, it increased the purchases will stop altogether by October. commercial bank current account from ¥5 The Fed has been buying US government trillion to ¥35 trillion (c. $300 billion). bonds and mortgage bonds from banks and other financial institutions in order to pump money into the financial system and boost “ Saving the financial The financial crisis, and the Great Recession the economy. which followed, changed everything. The system from collapse collapse of economic confidence in the West This is a form of quantitative easing (QE), a would be of little was so drastic that it exposed as a myth radical way of stimulating economies that the belief that the market is always self- will not respond to conventional monetary benefit if confidence correcting and that, following a downturn, policy, such as lower interest rates. Normally, however sharp, it will soon return to growth. central banks maintain a broad balance and economic activity between economic growth and inflation by collapsed instead.” Even though central bankers quickly cutting or raising interest rates to increase or slashed interest rates to close to 0%, banks, reduce demand in the real economy. However, businesses and consumers did not resume at times of extreme economic distress, such By buying more government bonds than their previous levels of economic activity. In as the aftermath of the 2008 financial crisis, required to set interest rates to zero, the BoJ fact, the very need for ultra-low interest rates confidence is so fragile that economic activity hoped to boost consumer spending and create seemed to exacerbate the problem: it was as will stagnate or even fall however low interest inflation. It did not work as it only increased much about a catastrophic loss of confidence rates are set. liquidity to the banks, which exchanged one as a shortage of money. People were simply sort of funds for another, and did not get unwilling to spend or lend to others. QE was first used by the Bank of Japan (BoJ) further than the banks’ balance sheets. QE in its battle to end the deflationary spiral was written off as a failure with no relevance In such a situation, economic collapse can that had afflicted the country since the late to booming Western economies. become a self-fulfilling prophecy. Many senior
26 Rathbones Review www.rathbones.com Easy does it
Janet Yellen, Chair of the US Federal Reserve, addresses a Joint Economic Committee hearing in Washington in May this year.
Image: Bloomberg via Getty Images
central bankers in 2008 had been educated in In his view, his predecessors at the Fed had This was the first lesson from the Great the 1960s when economics professors, who not only exacerbated the situation by raising Depression. had lived through the Great Depression in interest rates too early, but had failed in the the 1930s, were trying to understand how it first instance to provide sufficient money to In spite of its belief in capitalism, an element had happened and ensure that such a disaster encourage economic activity. of which is that bankruptcies are a necessary could never happen again. evil in a healthy economy, the US forced its In a speech in 2002, he said: “The US financial institutions to recapitalise to remove Analyses of the causes of the Great Depression government has a technology, called a printing the fear of individual or systemic failure. Even vary considerably, but most agree that press (or today, its electronic equivalent), that those that had sufficient reserves were forced political and economic decisions had turned allows it to produce as many US dollars as to accept government bailouts in return for the downturn following the 1929 Wall Street it wishes at no cost.” He also cited Milton equity, effectively partial nationalisation. Crash into a decade-long global depression Friedman who had talked of a ‘helicopter rather than a much shorter recession. In drop’ of money into the economy to boost The Fed also believed that it was necessary 2008, central bankers knew that they had to confidence and fight deflation. to boost confidence in the wider economy. take urgent and drastic action. Saving the financial system from collapse After the collapse of Lehman Brothers and would be of little benefit if confidence Indeed, Ben Bernanke, who became other financial institutions, Bernanke and and economic activity collapsed instead. Chairman of the Fed in 2006, well before the other US policymakers took the view that Faced with such a scenario, the Fed took a financial crisis, had spent his academic career recovery could not be contemplated while gamble on QE, which would be the analysing the causes of the Great Depression. there was a risk of further bank failures. ‘helicopter drop’ – although it had failed to
www.rathbones.com Rathbones Review 27 Easy does it
end deflation in Japan, there were few other by the banks to repair their balance sheets options. “ The real challenge rather than for lending, resulting in anger is not the ending of from owners of small and medium-sized In theory, QE involves the central bank companies who could not secure capital to electronically creating money, with which QE but the monetary support or expand their businesses. This it buys government bonds and other assets may not be headline news as it was three from banks and other financial institutions. tightening that will or four years ago, but QE certainly did not This new money is then lent to companies follow.” help smaller businesses as much as was or individuals in the real economy, boosting expected. activity and underpinning confidence. As I will explain, the reality was somewhat to the financial system following the failure Other problems resulting from QE are the different, although the overall effect was of Lehman Brothers, and also that it impact on savers of negative real interest arguably the same. improved market confidence and contributed rates; the shortfall faced by pension funds to the initial recovery from recession in and other investors as investment yields In November 2008, the Fed started buying 2009-2010. were driven down sharply; and the mortgage-backed securities, which had been widening of the divide between the affluent at the heart of the credit crunch that pushed Perhaps the only way to consider its and the rest of society – in inflating asset Lehman Brothers into bankruptcy. Before the effectiveness is in comparison to the Great prices, QE has increased the wealth of crisis, the Fed had around $700 billion of Depression. In spite of some dark periods those who own the assets. There may be Treasury notes on its balance sheet: by June in 2011 and 2012, the recession that other, hidden costs, but these are yet to 2010, when purchases were halted as the affected Western economies did not lead to emerge. economy was showing signs of recovery, this global depression. The recovery may have had grown to $2.1 trillion. been slower and less dramatic than after In spite of these considerable costs, QE previous recessions, but it has come through must be seen as a success as it helped to The economy started to stall in November eventually. However, this required far more prevent a 1930s-style global depression. 2010, so the Fed announced another round financial firepower than was envisaged in However, we are only halfway out of the of QE, followed by QE3 in September 2012. 2008. mess. The real challenge is not the ending This time it announced open-ended asset of QE but the monetary tightening that purchases, which were set at $85 billion One of the reasons for this was because QE will follow – it is far from certain how the per month. In addition, it used ‘forward did not work as it was expected to. Very little world will react to an increase in US interest guidance’ on interest rates, saying they of the new money left financial institutions, rates. would remain close to zero until at least particularly in the first few years. Instead 2015. It is QE3 which is being wound down of lending to boost real economic activity, The Fed has done what it can to telegraph this year. they used it to invest in other assets which that rates will have to rise at some point and were yielding more than the very low cost its new Chair, Janet Yellen, has suggested The Bank of England (BoE) also used QE. It of borrowing. This pushed down yields that this may be in the first quarter of next injected £375 billion into the UK economy of government bonds and then equities in year. In spite of some weak data following in several tranches by buying gilts from developed markets, resulting in a hunt for the polar storms in January, the US economy financial institutions and high-quality debt yield in riskier assets. seems to be achieving the growth required to from private companies. This was a fixed withstand the end of QE and the initial rise programme – in his last meeting of its As a result, there was a delay in restoring in interest rates. Monetary Policy Committee, the then BoE confidence: it was only when the US stock Governor, Mervyn King, was outvoted on a market started to reach pre-crisis levels that Indeed, the risk may be that QE and ultra- further increase to QE. US consumers, many of whom own stocks low interest rates have already stoked growth directly or through their pension plans, felt sufficiently that inflation is the real threat. We Has QE worked? It is not possible to the benefit. A similar effect was seen in the may look back and wish that QE had been answer definitively as we have no idea what UK through the property market, initially in tapered off and interest rates increased before would have happened to the global central London. now. If inflation were to take hold, the rise economy without it. However, the in interest rates required to bring it under International Monetary Fund believes that The UK differed from the US in another control would do serious harm to the global QE contributed to a reduction in the risks way. Much of the BoE’s initial QE was used economy.
28 Rathbones Review www.rathbones.com For valour
For valour Captain Noel Chavasse, VC and Bar, MC, RAMC
We mark the centenary of the outbreak of the First World War by commemorating the astonishing courage of a soldier with connections to Rathbones and our home city of Liverpool.
In September 1917, Captain Noel Chavasse of the Royal Army Medical Corps (RAMC), attached to the King’s (Liverpool Regiment), was posthumously awarded a Bar to the Victoria Cross he had won in August 1916. He was the only serviceman to win two Victoria Crosses in the First World War1. Remarkably, he had already been awarded the Military Cross and mentioned in dispatches.
Julian Rathbone, Investment Director, Rathbones
1 Only two others in history have won two Victoria Crosses. Lieutenant Colonel Arthur Martin-Leake VC and Bar received his first Victoria Cross in 1902 during the Boer War and the Bar while serving with the RAMC in Belgium in 1914. Coincidentally, he was one of those who treated Captain Noel Chavasse after his fatal wounding. Captain Charles Upham VC and Bar of the 2nd New Zealand Expeditionary Force (NZEF), to whom Captain Noel Chavasse was related by marriage, won a Victoria Cross for actions during the Battle of Crete in May 1941 and the Bar during the First Battle of El Alamein in July 1942.
Image: with the permission of the Master and Fellows of St Peter’s College Oxford
www.rathbones.com Rathbones Review 29 For valour
“He was the only serviceman to win two Victoria Crosses in the First World War.”
Noel Chavasse was born in Oxford on the RAMC and was attached as a Surgeon- 9 November 1884, 20 minutes after his Lieutenant to the 10th King’s, a Territorial identical twin, Christopher. Their father, Rev. Army battalion based in Liverpool and known Francis Chavasse, was appointed as the second as the Liverpool Scottish. Anglican Bishop of Liverpool in 1900. The twins attended Liverpool College, where they The battalion embarked for France in November were excellent sportsmen, before both won 1914 and, having been promoted captain in places at Trinity College, Oxford. April 1915, Noel was awarded the Military Cross for gallantry in its first major action at Noel graduated with a first-class degree in Hooge in Belgium in June 1915 and mentioned 1907, but Christopher failed and this caused in dispatches in November 1915. He was him to suffer a nervous breakdown. The twins awarded his first Victoria Cross for his actions stayed at Oxford – Noel to study medicine and at Guillemont on 9-10 August 1916 during Christopher to retake his exams. However, they the Battle of the Somme. The citation said that made time for sport and in 1908 both were he saved the lives of 20 men and “his courage chosen to represent Great Britain in the 400m and self-sacrifice were beyond praise”. at the London Olympics. He was similarly courageous in winning his In 1909, Noel returned to Liverpool and second Victoria Cross between 31 July and subsequently qualified as a doctor in 1912. 2 August 1917 in the first few days of the Battle His first placement was at the Royal Southern of Passchendaele (Third Battle of Ypres). The Hospital in Liverpool. In 1913, as tensions citation reads: increased in Europe, Noel applied to join
The Liverpool Heroes Memorial in Abercromby Square, depicting Captain Chavasse with a wounded soldier. Chavasse’s former home in Liverpool.
Images: with the kind permission of the University of Liverpool
30 Rathbones Review www.rathbones.com For valour
“War Office, September, 1917. Noel was buried in Brandhoek New Military Members of the Liverpool Cemetery. His medals, which his family had Scottish Regiment in 1914. His Majesty the King has been graciously pleased left to St Peter’s College, Oxford, were bought to approve of the award of a Bar to the Victoria in 2009 by Lord Ashcroft for around £1.5 Cross to Capt. Noel Godfrey Chavasse, V.C., M.C., million and are now on display in the Imperial late K.A.M.C., attd. L’pool R. War Museum.
For most conspicuous bravery and devotion to Noel’s twin brother, Christopher, displayed duty when in action. similar levels of bravery. In 1917, while serving as an Army Chaplain, he was awarded the Though severely wounded early in the action Military Cross for “conspicuous gallantry and whilst carrying a wounded soldier to the devotion to duty”. After the war, he became Dressing Station, Capt. Chavasse refused to leave the first Master of St Peter’s College, Oxford, “ Chavasse Park his post, and for two days not only continued which his father had founded, and was Bishop to perform his duties, but in addition went out of Rochester between 1940 and 1960. in Liverpool was repeatedly under heavy fire to search for and dedicated to the attend to the wounded who were lying out. Chavasse Park in Liverpool (which is close to our current offices in the Port of Liverpool memory of Noel During these searches, although practically Building) was dedicated to the memory of Noel without food during this period, worn with and Christopher Chavasse, and their father, and Christopher fatigue and faint with his wound, he assisted Francis, for his service as Bishop of Liverpool Chavasse, and their to carry in a number of badly wounded men, from 1900 to 1923, during which time he over heavy and difficult ground. was the driving force in commissioning the father, Francis.” construction of Liverpool Cathedral. By his extraordinary energy and inspiring example, he was instrumental in rescuing Captain Noel Chavasse is a relative of many wounded who would have otherwise Rathbones’ Head of Investment Management, undoubtedly succumbed under the bad weather Paul Chavasse. The actor Basil Rathbone, to conditions. whom I am related, also served in the Liverpool Scottish and won a Military Cross for bravery, This devoted and gallant officer subsequently although he served in a different battalion died of his wounds.” and they may not have met. His younger brother, John Rathbone, was killed in action on 4 June 1918.
www.rathbones.com Rathbones Review 31 China and Japan: interesting times
32 Rathbones Review www.rathbones.com China and Japan: interesting times
China and Japan: interesting times “May you live in interesting times” is the purported translation of an ancient Chinese proverb, often referred to as the ‘Chinese curse’. It seems appropriate today not only for China, as it wrestles with the problems of excessive growth over recent years, but also its near neighbour and rival Japan, which is facing different but no less interesting economic challenges.
Richard Dawson, Regional Director, Rathbones’ Kendal office
hina and Japan are increasingly China – short-term challenges engaged in a regional power struggle but huge potential Cthat has the potential to escalate into geopolitical conflict. Skirmishes between From an economic perspective, China has some “China and Japan are the two countries’ navies over the Senkaku/ major challenges to overcome. It grew rapidly increasingly engaged Diaoyu Islands in the East China Sea indicate over the last two decades, achieving average the fractious nature of their relationship, but real GDP growth (i.e. after inflation) of 9.7%, in a regional power the real cause of this tension is China’s huge but this has resulted in an unbalanced econ- growth over the last two decades to become omy. The principal problem is that China is an struggle. The real a global economic superpower. investment-driven economy and is far too reliant cause is China’s huge on state expenditure on infrastructure projects. With such power comes the need to protect growth to become and expand one’s sphere of influence, and The problems were exacerbated by the mas- China has been investing heavily in military sive stimulus package that the old leadership a global economic technology. It may only have one aircraft launched to offset the global financial crisis superpower.” carrier at present (which is one more than and subsequent recession. It also favoured the UK), but the US takes the threat from state-owned enterprises (SOEs), which has China very seriously. President Obama made resulted in the domination of many industries Left: Shanghai, the commercial and a week-long visit to Japan and China’s other by huge, but very inefficient, companies. financial centre of mainland China. democratic neighbours in April, part of a The Shanghai Tower, currently under conscious shift in US foreign policy from In addition, China’s financial system is out construction, is the biggest tower in China Europe to Asia-Pacific. of control and the shadow banking sector that and the second tallest in the world.
www.rathbones.com Rathbones Review 33 China and Japan: interesting times
exists outside the state banking system has China v Japan resulted in excess credit and poor investment decisions. Corruption also became endemic as party officials, particularly in less developed regions, felt that they should benefit from the rapid economic expansion.
The new leadership, elected for 10 years by Communist party officials in November 2012, seems to have a good understanding of the problems. President Xi Jinping and Premier Li Keqiang are both committed to reform, although Li Keqiang is the real driver for Nominal GDP (2013) change. His economic strategy is to remove stimulus, deleverage and rebalance the econ- $9.18 trillion $5 trillion omy away from investment towards domestic consumption.
He recognises that there may be a “temporary Population hard landing”. Real GDP growth fell to 7.4% in Q1 and this slowdown, concerns about the 1.36 billion 127 million financial system and recent credit defaults by Chinese companies have worried investors. However, the leadership seems to understand the issues and the potential risks from an Nominal GDP per capita overzealous clampdown. It may take longer than many commentators initially expected, $6,747 $39,321 but the reforms should be seen in the context of the 10-year political cycle.
In the long term, there is much to be optimistic Largest city by population about. China’s economy is forecast to become the world’s largest within 20 years and its 24.15 million 13.18 million consumption could exceed that of the US by 2045. The key will be the emergence of a new middle class, the scale of which will be staggering. If defined as those earning between $16,000 Stock market capitalisation (as at 30 April 2014) and $60,000, it will grow from just 8 milion people today to over 700 million by 2030. $2.35 trillion $2.59 trillion Japan – different this time?
Japan’s challenges are very different, but must Size of active military be understood in the context of China’s recent history. While its neighbour has had two decades 2,285,000 230,000 of exponential growth, Japan has endured a period of torpor. The economy has stagnated and a spiral of deflation has defied all attempts by successive governments to boost growth and re-establish healthy levels of inflation.
34 Rathbones Review www.rathbones.com China and Japan: interesting times
The Nikkei 225, the primary barometer of the Japanese stock market peaked in December 1989 at 38,957 – it has since been as low as 7,055 in March 2009 and at the time of writing is still only 14,405. However, this is sharply higher than it was 18 months ago before the election of Shinzo Abe as Prime Minister. After years of decline, Mr Abe was elected on a radical economic package (dubbed ‘Abenomics’) of ultra-loose monetary policy, huge fiscal stimulus and much-needed social, financial and economic reforms.
By threatening the Bank of Japan (BoJ) with major reforms, Mr Abe secured its support for a radical change in monetary policy. Targeting 2% inflation, the BoJ has launched a massive quantitative easing programme similar in scale to that of the US Federal Reserve, but concentrated over two years rather than five. its competitiveness, is harder to deliver. Japan months, but there is plenty more upside if Mr is an innately conservative country and this Abe is able to maintain the broad coalition As a result, the amount of cash in circulation has undermined its competitiveness. Changes of national opinion that enabled him to start plus commercial bank deposits at the BoJ are needed if economic health is to be restored, reawakening the Japanese economy. will double over this time. This is designed including to immigration, gender equality, to achieve the inflation target as quickly as finance and corporate culture. Conclusion possible. The resulting weakness in the yen has helped to boost exports as Japanese goods Mr Abe is negotiating membership of the The rivalry between China and Japan may lead have become more competitive against those proposed Trans-Pacific Partnership, a regional in future to increased geopolitical tension in of rivals such as South Korea. free-trade agreement; he plans to split off the the region, but for now investors should not transmission arms of the electricity generators be unduly concerned. In spite of the challenges to create competition in retail electricity sales; of rebalancing the economy, China will “ China will continue and committees are examining how labour continue to grow and increased wealth is a far to grow... and the policy, healthcare and agriculture might better goal for its leadership than conflict with be reformed. Japan. perceived threat may be It is not yet clear if Abenomics will succeed. Perversely, the perceived threat from China good for Japan.” Mr Abe made amazing progress in his first six may be good for Japan. After decades of months in office, but recent data have brought stagnation and ineffective leadership, it may into question whether he will achieve his goals. create a sufficient unifying force for a proud, Mr Abe has promised a similarly radical fiscal An increase in the sales tax from 5% to 8% but excessively conservative country to make stimulus package, announcing a ¥10 trillion in April may undermine consumer confidence the reforms that are required to let it compete ($107 billion) programme to rebuild infra- and there are fears that the government and more effectively. structure damaged by the 2011 earthquake and BoJ have become complacent and may not take tsunami. This is bold given the debt-to-GDP additional measures if required. No Chinese source has ever been identified ratio is already over 200%, but Mr Abe is for the ancient proverb in the introduction. committed to success at all costs and needs We remain cautiously optimistic. Mr Abe’s However, there is a Chinese saying,“宁为太 to stimulate the real economy as well as the policies are radical and will be hard to deliver 平犬，莫作乱离人”, which roughly translates financial system. in full, but the alternative for Japan would be as “rather live as a dog in peaceful times than to accept that its glory days are over and to to live as a human in turbulent times”. China The third element of Abenomics, the wide- defer to China as the region’s major power. The and Japan can choose instead to coexist and ranging reforms that Japan needs to increase Nikkei may have risen sharply over the last 18 live as humans in peaceful and affluent times.
www.rathbones.com Rathbones Review 35 Transforming lives through live crowdfunding Transforming lives through live crowdfunding
Crowdfunding is a new way for charities to raise money. The term describes the sourcing of finance from backers – the ‘crowd’ – to fund an initiative, often through the internet. Sonal Shenai, Executive Director, The Funding Network, explains how the organisation supports young charities through crowdfunding events and suggests how charities can improve their chance of success when seeking such funding.
Participants at one of The Funding Network’s live crowdfunding events.
36 Rathbones Review www.rathbones.com Transforming lives through live crowdfunding
£6 million Amount raised by The Funding Network for charitable projects through crowdfunding Over 800 Number of charitable projects The Funding Network has raised money for through crowdfunding £5,000 Typical funding target set for charitable projects at The Funding Network’s events
The standard funding target of £5,000 is comfortably exceeded by many projects:
£12,000 One Mile Away works to prevent gang violence in Birmingham.
£16,000 Orchid Project works to end female genital cutting in Senegal.
£30,000 New Horizon Youth Centre helps vulnerable young Londoners.
www.rathbones.com Rathbones Review 37 Transforming lives through live crowdfunding
n incubator network investing in young resulting from Penny Woolcock’s documentary, Five tips for startups, The Funding Network has as well as influential local initiatives including successful Acreated a community of givers and FoodCycle, Hackney Pirates, Vision Housing supported new and grassroots charities for and prison rehabilitation music project, crowdfunding over 12 years. To date it has successfully raised Changing Tunes. from The Funding Network over £6 million for more than 800 charitable projects. Donors are driven in part by offers of match Consider your ask funding, but more significantly by the feeling Whether through book clubs, dance classes or of giving as a group; it is highly motivating to The Funding Network receives investment circles, people enjoy being part of know that your contribution, regardless of many more applications than it can a group and charitable giving is no exception. size, is an integral part of a substantial overall select, so it’s important to tailor In an increasingly virtual world, attendees at total. For the charities, live crowdfunding 1 applications carefully towards the The Funding Network’s unique live crowd- events such as these often prove to be catalytic, requirements of whichever funding events enjoy the opportunity to meet providing the springboard for organisations crowdfunding organisation you like-minded people as well as social entrepre- to raise larger sums of money to undertake apply to. neurs and activists face-to-face. pilots, trials and eventually roll-outs on the ground. Sixty-two per cent of funded charities Prepare your pitch With charitable projects sourced and endorsed reported that the funding they received at The by The Funding Network’s membership, each Funding Network events helped them to Six minutes is a relatively short live event is open to the general public to attend leverage further funding. period of time in which to pitch to and donate in an inspiring, quick-fire series an audience so it’s important that 2 of presentations and pledging sessions. When An early model for the now ubiquitous crowd- the presentation is concise and the the pitches are finished, the charities leave the funding and collective online giving, The key messages shine through. room and the live crowdfunding session begins. Funding Network was founded in 2002 by Attendees are invited to make donations to any four people who wanted to support innovative Tell a great story charities that they wish to support. young charities together in a sociable way. By
The emotive can often trump facts While no one is under any obligation and figures. Audiences love to hear to give, charitable projects regularly “ Live crowdfunding events from those directly benefiting from exceed their £5,000 funding target 3 an organisation’s work; we at the events. Orchid Project, for often prove to be catalytic encourage projects to use quotes example, raised over £16,000 for its from beneficiaries and even bring for charities, providing the work to end female genital cutting them along if possible. in Senegal. New Horizon Youth springboard to raise larger Centre, whose pitch was delivered by Explain your impact the broadcaster Jon Snow, raised over sums of money.” £30,000 for its work helping Explain your impact and any vulnerable young Londoners. One Mile Away, 2012, there were 500 online crowdfunding potential to become self- which works to prevent gang violence in platforms and crowdfunding contributions 4 sustainable or replicate. Knowing Birmingham, raised over £12,000 at one event. towards profit-making and charitable projects that a relatively small amount of seed funding can set up a in the UK alone reached an estimated £200 groundbreaking pilot can be very The Funding Network is often the first funder million in 2012 (Working the Crowd, Nesta, powerful to the audience. to provide early-stage backing to charitable 2013). start-ups, many of which have gone on to become highly regarded and able to attract As a charity, The Funding Network is grateful Ask for support significant funding elsewhere. The Funding to its members and corporate supporters for Encourage your supporters and Network has previously crowd-sourced early helping to offset its costs. Rathbone Greenbank 5 networks to support your campaign funding for the likes of pioneering climate Investments is The Funding Network’s most in order to maximise the potential change film Age of Stupid and the related 10:10 longstanding corporate supporter and has been amount raised, especially if they campaign; political campaign group 38 instrumental in its journey, generously can offer match funding, a great Degrees; One Mile Away, the social enterprise supporting its events in Oxford and Bristol leverage tool.
38 Rathbones Review www.rathbones.com Transforming lives through live crowdfunding
and hosting an annual event for The Funding Network’s members at its London offices. The typical online process of crowdfunding
Matt Crossman (Ethical Research and Corpo- rate Engagement), says: “We value the connection with The Funding Network, since Pitch Screening its funding model encourages people to make a positive impact with their money, a natural The charity pitches The proposal its offering to an is screened to ‘fit’ with our core ethos as an ethical investment online platform. ensure it meets the manager.” platform criteria.
Jan Stimpson, Member and Trustee of The Funding Network says: “As a home owner with a family and work responsibilities that I care about deeply, I thought there were limited Funding window Pitch goes live ways, at least in the short term, that I could opens If approved, the make a difference. When I attended my first pitch is launched on The Funding Network event, I realised this was its own campaign not true. The proximity and understanding page within the offered by this charity to the people working platform. in hard-to-reach places spoke to me in a way that changed my life. I could get involved, offer Project Funding support, pledge money, witness and participate idea deadline in the often phenomenal, against-the-odds changes that followed, to people facing the Funding Expected return challenging and sometimes insurmountable target for funders problems that the world can throw at us. Without judgment or superiority I can access and contribute to work that matters to me in a way that is accountable, respectful and Public pledge Funding deadline effective. It has made a huge difference to my money reached life and I hope a difference to others along People pledge money the way.” towards the funding goal in support of The Funding Network is open to new members the project. interested in and committed to supporting young social change organisations. Membership starts from £85 per annum and includes a number of benefits, such as the opportunity to nominate charities and social enterprises for funding. To learn more about The Funding Network and how to Project gets money Project ends get involved as a member, please contact Charlotte Milner-Barry on 0845 313 8449 or at [email protected]
Project development The charity is able to develop the project or service.
www.rathbones.com Rathbones Review 39 Dealing with dementia
40 Rathbones Review www.rathbones.com Dealing with dementia
Dealing with dementia More than 820,000 people in the UK have dementia and that figure is expected to rise to over a million by 2021. Alzheimer’s Research UK estimates that one in three people aged over 65 will die with some form of dementia – 163,000 new cases are diagnosed in England and Wales each year. Here we explain the regulations and practices that govern how Rathbones deals with clients who are affected by this condition and others like it.
Kevin Custis, Director, Rathbone Trust Company
he latest forecasts from the Office for Some of us will at some stage lose the capacity National Statistics suggest that as many to manage our affairs. We believe it is therefore “Our clients can Tas one in six people reaching 65 this important to share with clients our approach expect to be treated year will live to 100. There are already 14,000 to this sensitive issue. centenarians in the UK today and by 2037 with sensitivity, there could be 10 times that number. However, The 2005 Mental Capacity Act (MCA) gives while physical wellbeing has been extended a statutory framework for how to treat those patience and dramatically, developments in mental health who may have lost capacity, are starting to understanding have lagged behind. lose capacity or wish to make provision in case they do, including the conduct of their financial if they suffer The prevalence of dementia increases as we affairs. grow older, so one of the consequences of an impairment of their ageing population is that we will have to deal While this legislation applies generally, there mental capacity.” more often with the condition. are other regulatory requirements that are not
www.rathbones.com Rathbones Review 41 Dealing with dementia
Dementia in the UK
820,000 people in the UK have dementia
1.7 million people in the UK will have dementia by 2050
1 in 3 people aged over 65 will die with a form of dementia
always in perfect harmony with it. For example, at the particular time when a decision has Over 80% when managing investments and giving to be made. This is because the loss of of people in care homes financial advice, we are bound by many laws capacity could be temporary, partial or have dementia or severe and regulations overseen by the Financial fluctuating. Conduct Authority. memory problems Secondly, the person’s decision is issue-specific, We are also under an obligation to treat cus- so the judgment on capacity must concentrate tomers fairly (and be seen to have processes on the particular matter to which the decision £23 billion and systems to do so). However, to treat clients relates rather than to any ability to make impact of dementia on with capacity issues fairly we may be required decisions generally. This means someone may the UK economy to act very differently from the way we would not have the capacity to make a decision over treat other clients. Given the wide range of con- one particular issue, but may be able to make ditions that can impair capacity and the varying others. This is particularly relevant where £8 billion degrees of incapacity that can result, this is a complex financial matters are concerned. amount that unpaid subject that deserves detailed consideration. carers supporting The Act also goes on to list certain principles someone with dementia It is first necessary to establish a proper under- to put these concepts into their practical standing of mental incapacity. According to context: save the economy a year the MCA, this is defined as: • Every adult has the right to make his or Source: Alzheimer’s Society “A person lacks capacity in relation to a matter her own decisions and must be assumed to if at the material time he is unable to make a have capacity to make them unless it decision for himself in relation to the matter is proved otherwise. because of an impairment of, or a disturbance As we get older, many of us have occasional in the functioning of, the mind or brain.” ‘off moments’ and some of us may be deemed eccentric. Thankfully the Act does Mental capacity therefore has two components. not require Rathbones to impose judgments Firstly, it is time-specific and must be judged of normality.
42 Rathbones Review www.rathbones.com Dealing with dementia
• A person must be given all reasonable help • Anything done for or on behalf of a person before anyone should treat them as not who lacks capacity should be the least “ Mental incapacity being able to make their own decisions. restrictive of their basic rights and freedoms. is clearly a difficult This encourages us to be more involved We always have to be sensitive to the rights with our clients, particularly in clarifying and freedoms of clients in this difficult issue and we issues before decisions are made. We find situation. it is often helpful to meet face-to-face if a recognise the complicated issue needs to be discussed. Mental incapacity is clearly a difficult issue complexities and we recognise the complexities surrounding • Just because an individual makes what it. Our clients can expect to be treated with surrounding it.” might be seen as an unwise decision, they sensitivity, patience and understanding if they should not be treated as lacking capacity suffer impairment of their mental capacity. to make that decision. Likewise, they and their loved ones can be Bad or even highly irrational decisions do reassured that we understand our responsibil- not necessarily mean that capacity has been ities and will not shirk them for a quiet life. lost. Where incapacity becomes an issue, we will face it and be guided by the MCA to act in the • Anything done or any decision made on best interests of the client. behalf of a person who lacks capacity must be in their best interests. For more information on dementia and to As discretionary investment managers, we support research into the condition visit make decisions on this basis anyway, but www.alzheimers.org.uk we must be even more mindful of this where a client has reduced capacity.
An investment manager’s perspective Jane Sydenham, Investment Director, Rathbones
There is no short- of attorney to make decisions on their behalf decisions as I better understand the client’s age of legislation should they be unable. The attorney has a circumstances and investment goals, but it or regulations to clear legal duty to act in the best interests can also help where a client appears to be protect clients with of the person concerned. This is relevant not losing their mental capacity. While respecting mental incapacity, just to dementia but also to other situations confidentiality, it can be beneficial to speak but in practice this of incapacity. to a client’s loved ones to establish that all is is an exceptionally difficult area. My approach well. Dementia is only one cause of unusual or is to address the subject long before it may be The best safeguard for clients is the relation- erratic behaviour – medication, physical illness relevant by asking clients how they would wish ships that we have with them. Rathbones does or anxiety can result in similar symptoms. me to deal with it. I usually advise speaking to not use relationship managers: our investment a solicitor about establishing a lasting power managers have a direct relationship with their There are limits to what I can do. The law is of attorney. clients. These relationships are often long- clear – unless there are very obvious grounds standing and it is therefore relatively easy to for concern, clients are free to behave as they This is a legal document, not unlike a will. spot unusual or erratic behaviour. wish. This can be difficult where a client’s It may cover either health and welfare or family feels they are making rash decisions, property and financial affairs – which is rele- Where appropriate, I like to get to know a but ‘spending the children’s inheritance’ is not vant here. People (‘attorneys’) are appointed client’s partner and/or family (many of whom a sign of mental incapacity. by the person establishing the lasting power are also clients). This helps my investment
www.rathbones.com Rathbones Review 43 Välkommen till Liverpool
Välkommen till Liverpool* Based in Rathbones’ Liverpool offices, Investment Director James Hedley has more than 20 years’ experience of managing portfolios for private clients, families, trusts, estates, pensions and charities. But there are thousands of other people who also rely on his expertise and judgment – in his role as a UK consul to Sweden.
* Welcome to Liverpool
44 Rathbones Review www.rathbones.com Välkommen till Liverpool
Left: Rathbones Investment Director and Swedish consul James Hedley outside the historic Port of Liverpool Building.
ames Hedley was just seven when he made fallen significantly, but there are still around “It must have been in the tea leaves,” he says. his screen debut in Robin Hood Junior. By 6,000 Swedes – many of them the descend- “I do feel Sweden and the UK have a genuinely Jhis own admission, it was no blockbuster. ants of those who passed through en route to close relationship that’s often not fully The Children’s Film Foundation, a non- the States – living in Liverpool and the wider appreciated by many people in this country. profit-making organisation subsidised by North West area. There’s an enormous amount of commercial the Eady Levy, a tax on box-office receipts, and cultural cooperation. We have a lot of paid him £1 a day. He got his break after his Little wonder, then, that one of Sweden’s 17 common values.” stepfather, a member of the production crew, UK consulates remains based in the city. To be recruited him for a scene that required a crowd precise, it is located at Rathbones’ offices in ………………………………………………… of child extras. As far as he can recall 40 years the historic Port of Liverpool Building, where later, he had one line. James has fulfilled the role of consul for the A consul’s duties are wide-ranging. They may past 13 years. be less all-consuming than they once were – Few of those on set could have guessed how James is usually able to complete his in around their lives would turn out. Andrew Sachs, who half an hour each day – but they still carry had a bit-part as a friar, went on to achieve “ I do feel Sweden and considerable responsibility. TV immortality as Manuel, Fawlty Towers’ the UK have a genuinely perpetually bemused Spanish waiter. Keith “I think my predecessor had more on his plate Chegwin, the eponymous hero of the piece, is close relationship than I have now,” says James. “For instance, nowadays perhaps best remembered – or for- whenever a Swedish ship came into port he gotten – for his ill-fated, full-frontal appearance that’s often not fully had to go down to the dock with the harbour as the presenter of Naked Jungle, a uniquely appreciated by many authorities, sign off the sailors for shore leave short-lived game-show for nudists. and then sign them back on to the boat again people in this country. ” afterwards. That’s no longer part of the remit, And James? He became an Investment Director thankfully. at Rathbones, was appointed a UK consul to “I knew my predecessor professionally, and Sweden and was recently awarded a knight- he was aware of my family’s longstanding “I would say the primary function of a consul hood by King Carl XVI Gustaf. Maybe truth business links to Sweden,” says James. “The nowadays is to help people to help themselves, really is stranger than fiction. Swedish Embassy asked if he could suggest rather like a consultant or a counsellor might. someone who might be able to take over when People typically get in touch with requests for ………………………………………………… he stepped down, and I was a pretty open door referrals or references or for assistance with to push against.” personal civic rights or identity registration. Some 1.3 million Swedes left their homeland for the United States in the 19th and early 20th The first step of the formal process that “I’ve also been involved in diplomatic inter- centuries. Sweden had suffered crop failures followed was an interview at the Swedish vention and representation, including liaising and a dramatic population explosion; America Embassy in London. James’s candidacy was with Special Branch, although that sort of thing promised low-cost, high-quality farmland and subsequently endorsed by the Swedish has to stay confidential. I’m often in a position well-paid jobs in manufacturing industries. Ambassador to the UK and approved by the where I’m verifying identities or making quali- Many of those who made the journey were Swedish and UK Foreign Offices, and in 2001, tative judgments, so there’s a very real sense of forced to await passage in Liverpool, which after the necessary security checks and other accountability – especially with a state that’s by the 1920s was home to up to 60,000 precautions, diplomatic status was granted. as efficient as Sweden.” Scandinavians. Only years later did James take part in a national DNA survey and trace his own ancestry, James is aware that some might wonder how Today the legacy of that mass migration can via Northumberland and Greenland, back to he successfully balances his roles. The answer still be found on Merseyside. Numbers have Scandinavia. is that the two worlds never collide. As a rule,
www.rathbones.com Rathbones Review 45 Välkommen till Liverpool
he devotes his normal working day to his Rathbones clients and his lunchbreak to his consular tasks. Each receives his full attention individually. They are complementary rather than in competition.
“The challenge I’ve always relished above all others as an investment professional is to achieve long-term positive results for my clients in a fast-moving and ever-changing world,” says James. “It’s much the same from a consul’s point of view. You want the people you deal with to know they can trust you and that you’re going to do your absolute best for them.”
……………………………………………………
James received his Swedish knighthood in 2011, thus becoming a Knight First Class of the Royal Order of the Polar Star. Her Excellency Nicola Clase, Sweden’s Ambassador to the UK, travelled to Liverpool to present the award in person. Bestowed by King Carl XVI Gustaf, it recognised James’s “long and distinguished service” as Swedish consul for Liverpool and Merseyside, the North West of England and North Wales and Anglesey.
The average Swede’s grasp of English is so complete that James has never needed to master Swede tooth Swedish, but one phrase he does know – appro- priately enough, given the occasion – is “Tack Many of Sweden’s most successful exports Marcus Samuelsson, even oversaw President så mycket”. It means “Thank you very much”. have achieved almost global renown. Volvo, Obama’s first official state dinner. So the IKEA and ABBA are among those that most country’s culinary reputation is very much on “Receiving a knighthood was an enormous readily spring to mind. the rise.” honour,” he says. “For me, ‘freedom’ and ‘beauty’ are two words that sum up Sweden Swedish food is perhaps less well known. Classic dishes include gravad lax (dill-cured – both the place and the people. I admire so Search the internet for “Swedish chef” and the salmon), a stalwart of the traditional smörgås- much about the country, from its food to its chances are you will find little more than bord; raggmunk, a potato pancake fried in cities to its countryside. I believe it has a culture Muppet Show sketches. Now, however, Sweden butter and served with pork and lingonber- of liberty, compassion, equality and duty, and is at last recognising the wider appeal of its ries; cinnamon buns, a perennial favourite of I’m extremely proud to be even a small part cuisine. sweet-toothed Swedes; kroppkakor, a variety of that.” of potato dumpling; and, of course, meatballs. “Sweden is becoming one of Europe’s hotspots Even prouder than he is of that small part of for food-and-drink tourism,” says James. “The One of James’s personal recommendations is 40 years ago? “I’ve come a long way since nation has really embraced the concept, which Mackmyra Brukswhisky, a highly acclaimed, Sherwood Forest,” he laughs. “I probably is already well supported by official policies. multi-award-winning single malt produced by haven’t seen Robin Hood Junior since it was a distillery founded just 15 years ago. James originally released. My children keep pestering “The Swedish team won gold at the Culinary was introduced to it in 2006, when he and his me about it, and I understand you can find a Olympics in 2012. Swedish chefs also picked fellow consuls were invited to Sweden for a clip or two on YouTube these days... I’m really up several medals at the Bocuse d’Or, the training and networking event. It was voted not certain I can face it – although I’m sure it unofficial world championships of haute Best in Class at the 2010 International Wine still ranks as a classic!” cuisine. One of the country’s leading chefs, and Spirit Competition.
46 Rathbones Review www.rathbones.com Important information Unless otherwise stated, the information in this document was valid at 18 June *Rathbone Investment Management International is the Registered Business Name 2014. Not all the services and investments described are authorised or regulated of Rathbone Investment Management International Limited which is regulated by by the Prudential Regulation Authority or the Financial Conduct Authority. the Jersey Financial Services Commission. Registered office: 26 Esplanade, St. Helier, Rathbones, Rathbone Unitised Portfolio Service and Rathbone Greenbank Jersey JE1 2RB. Company Registration No. 50503. Rathbone Investment Investments are trading names of Rathbone Investment Management Limited, Management International Limited is not authorised or regulated by the Prudential which is authorised by the Prudential Regulation Authority and regulated by the Regulation Authority or the Financial Conduct Authority in the UK. Rathbone Financial Conduct Authority and the Prudential Regulation Authority. Registered Investment Management International Limited is not subject to the provisions of the office: Port of Liverpool Building, Pier Head, Liverpool L3 1NW. Registered in UK Financial Services and Markets Act 2000 and the Financial Services Act 2012; England No. 01448919 and, investors entering into investment agreements with Rathbone Investment Management International Limited will not have the protections afforded by those Rathbone Unit Trust Management Limited is authorised and regulated by the Acts or the rules and regulations made under them, including the UK Financial Financial Conduct Authority and is a member of the Investment Management Services Compensation Scheme. This document is not intended as an offer or Association (IMA). Registered office: 1 Curzon Street, London, W1J 5FB. solicitation for the purchase or sale of any financial instrument by Rathbone Registered in England No. 02376568 Investment Management International Limited. The information and opinions expressed herein are considered valid at publication, but are subject to change Financial advisory and self-invested personal pension (SIPP) services, including the without notice and their accuracy and completeness cannot be guaranteed. No part Rathbone SIPP, are provided and administered by Rathbone Pension & Advisory of this document may be reproduced in any manner without prior permission. Services Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: 1 Curzon Street, London, W1J 5FB. Registered in © 2014 Rathbone Brothers Plc. England No. 05679426. This publication is printed on material sourced from responsibly managed forests Tax, trust and company administration services are supplied by trust companies and from 10% recovered fibre, diverting waste from landfill. It is certified in in the Rathbone Group. Rathbone Trust Company Limited is authorised and accordance with the FSC® (Forest Stewardship Council®) and manufactured under regulated by the Solicitors Regulation Authority. Registered office: 1 Curzon Street, strict environmental management systems, the international ISO 14001 standard, London, W1J 5FB. Registered in England No. 01688454. EMAS (Eco-Management & Audit Scheme) and the IPPC (Integrated Pollution Prevention and Control) regulation. All rights reserved. All above companies are wholly owned subsidiaries of Rathbone Brothers Plc. Head office: 1 Curzon Street, London, W1J 5FB. Tel +44 (0)20 7399 0000. Rathbone Brothers Plc is independently owned, is the sole shareholder in each of its subsidiary businesses and is listed on the London Stock Exchange. ‘Independent’ and ‘independence’ refer to the basis of Rathbones’ ownership as a corporate entity, and not to our use of non-life packaged products for clients of our advisory or nondiscretionary investment management. www.rathbones.com and are registered trademarks of Rathbone Brothers Plc.
Contact us If you would like further information or to arrange an initial meeting, please call Christopher Dean on 020 7399 0000 or email [email protected]
Head office 1 Curzon Street, London W1J 5FB www.rathbones.com
We also have offices at the following locations:
Aberdeen 01224 218 180 www.rathbones.com/office/aberdeen Birmingham 0121 233 2626 www.rathbones.com/office/birmingham For ethical investment services: Bristol 0117 929 1919 www.rathbones.com/office/bristol Cambridge 01223 229 229 www.rathbones.com/office/cambridge Rathbone Greenbank Investments Chichester 01243 775 373 www.rathbones.com/office/chichester 0117 930 3000 Edinburgh 0131 550 1350 www.rathbones.com/office/edinburgh www.rathbonegreenbank.com Exeter 01392 201 000 www.rathbones.com/office/exeter For offshore investment management services: Kendal 01539 561 457 www.rathbones.com/office/kendal Liverpool 0151 236 6666 www.rathbones.com/office/liverpool Rathbone Investment Lymington 01590 647 657 www.rathbones.com/office/lymington Management International Newcastle 0191 255 1440 www.rathbones.com/office/newcastle 01534 740 500 Winchester 01962 857 000 www.rathbones.com/office/winchester www.rathboneimi.com