Your money, your way

A few years ago I needed to make quite a large payment out of my bank account to pay for some building work. I more or less had to get down on my hands and knees in the bank before they deigned to accept that I was who I said I was, and was not laundering the money on behalf of foreign dope fiends.  ‘It’s my money,’ I remember remonstrating with the cashiers, ‘and I can do what I want with it!’

My hair has started to fall out and I blame the banks…

Anything to do with managing one’s own money has become mega stressful.

A dying breed?

A few years ago I needed to make quite a large payment out of my bank account to pay for some building work. I more or less had to get down on my hands and knees in the bank before they deigned to accept that I was who I said I was, and was not laundering the money on behalf of foreign dope fiends.  ‘It’s my money,’ I remember remonstrating with the cashiers, ‘and I can do what I want with it!’

Then there was the matter of a family trust…

There were two authorised signatories to this account, a solicitor who had long since retired and my father, who had been dead for twenty years.

As far as Lloyds Bank were concerned, these were the two people who could sign cheques. In fact, for many years, my cousin signed the infrequent cheques drawn on the account and because Lloyds, in common with other banks, does not bother to check payments below a certain level, these were all happily processed.

Nonetheless, I thought it about time to get the names of the current trustees on the account changed. It took almost a year. Visits to the local branch of Lloyds Bank. Telephone calls. Letters to some place in Leicester if I remember rightly. And of course, numerous forms to fill in and ID evidence to produce.

I cannot tell you how inefficient the whole process was. Nobody at Lloyds seemed to know what was required. We went round and round in circles until eventually the job was done, culminating in a letter of apology from Lloyds and a small compensation payment.

I also received a compensation payment from Barclays…

Last year’s introduction of its SmartInvestor online dealing platform was an absolute fiasco. Not only was rather a good product replaced by an inferior one, but the execution was disastrous with numerous errors, dividends not paid and customers denied access to essential information. Needless to say, many of these customers headed for the exit, demanding to move their assets elsewhere.

For reasons that had nothing to do with Barclays’ transition, I was one of those asking to have assets transferred away. It took about five months. I wrote letters to all the senior people in the organization, including Barclays Chairman John McFarlane (annual salary £800,000), none of which got beyond what must have been a massive pile in the Customer Services department.

Long phone calls were made from here and Australia, but still nothing happened…

Eventually the transfer was made and I received a call from a Barclay’s ‘customer facing’ employee who no doubt spent his day receiving abuse. Despite all those ‘know your client’ directives, he clearly knew nothing about me (for my sins, I have been a Barclays customer for 45 years), but he coughed up the required avowal of sincere apology and then said he would give me £150 and a Christmas hamper.

While thanking him, I assured him I would entirely have preferred Barclays to have done things properly in the first place and then went out and given the £150 to the local Big Issue seller.

So when a newcomer enters the Stock Market with the proposition that ‘the financial services sector is ripe for disruption’, I, as Deborah Meaden would say on Dragon’s Den, ‘totally get it.’ This newcomer is Augmentum Fintech (AUGM).

A people’s champion?

This is a closed-end fund set up to invest in disruptive newcomers that can pick away at the rotting carcass of what it accurately calls ‘multi-faceted providers, encumbered with legacy systems, unwieldy bureaucracies, challenged by an increased compliance and regulatory burden.’

Let me get one thing out of the way…

Unlike another investment company Arix Biosciences, which as I revealed in my Breakthrough Biotech letter, pays its officers repulsively large sums of money at the direct expense of outside shareholders, Augmentum Fintech is not a rip-off.

Once a new investment management company has been approved by the FCA (one might think that this should have been done before the stock market launch), the total annual expenses ‘are not expected to exceed £410,000 per year’ i.e. a modest 0.4% of the proposed £100m value of the new company.

The company will buy back shares if the price is at much of a discount and will offer shareholders a vote on winding up the company if the NAV falls from the opening 99p (after the expenses of the issue) to 70p.

There is one more thing, although this is a bit obscure…

The Prospectus states that ‘The Company commits to return to Shareholders up to 50% cent. of the gains realised by the disposal of investments in each financial year…….(but) shareholders should note that the return of capital by the company is at the absolute discretion of the Directors.’ So is that a commitment, or not?

Anyway, it looks as if the management team is there to try its best for investors rather than simply to line its own pockets. So what are its chances?

Learning to tread water

Augmentum Fintech identifies several types of business that could, or indeed already do, alter the financial landscape. One is peer-to-peer lending.

Despite dire warnings from luminaries such as former Chief Financial Regulator Adair Turner, peer-to- peer lending, through platforms such as Zopa and Funding Circle, is growing apace with £8bn lent in the UK from a standing start in 2010.

Another area ripe for a shake-up is asset management, where the online platforms offer private investors a great alternative to the ‘high fees, poor returns, low tech solutions and bloated service delivery chains’ of the traditional providers (Barclays Smartinvestor excepted).

The whole area of payments is also evolving fast. On my recent holiday to Australia my pre-loaded cash card was accepted everywhere and more or less did away with the need to carry cash.

While intending to build a fund of £100m split between 15-20 investments, Augmentum is inheriting five. The largest is a stake in the Zopa peer-to-peer lending platform, followed by BullionVault, a retail trading platform for precious metals, as well as a shareholder in Whisky Direct, through which retail investors can invest in the Scottish amber nectar.

Then there are three smaller investments, in the online broker Interactive Investor; the crowdfunding platform Seedrs; and SRL Global, which provides a platform that allows large family offices, endowments and pension funds to manage their investments across any number of sub-managers.

Augmentum claims to have narrowed down these choices from an initial field of 1200 candidates, but even so, its record to date is sketchy. Of seven investments made (the five that are going into this new company plus two more) only two have gained significantly in value. Although these have done well enough to deliver, based on the dark arts of private equity valuation, an overall book profit of £51m on total investments (dating back to 2010) of £32m.

Europe: A Fintech haven

Augmentum argues that the application of Fintech (financial technology) to financial services is only just beginning to change the landscape, and that for reasons relating to regulation, Europe will lead the way. It quotes a 2015 Review of Banking by McKinsey, which identified $300bn of revenues under threat from Fintech. So should you buy into this new company?

Not at first. This is a closed-end company, like an investment trust. With no intention to pay a dividend, there is no yield support and the shares may well slip to a discount to their starting NAV of 99p. The highly selective investment process is not consistent with getting the new money invested quickly, and it will be some time before we see the full make-up of the portfolio, not to mention how it actually performs.

Ultimately, the returns may depend upon Augmentum backing one or two big winners, like for example, and this may well happen.

But there is a wider message here for investors…

I totally agree with the premise that the financial services industry, in particular banking and insurance, is hopelessly inefficient and dysfunctional, and provides a rotten service for its customers.

Anyone who invests in the big banks needs their head examined. In terms of customer acceptance, newcomers into the industry are pushing on an open door and there should be some big successes.

It will be interesting to see where Augmentum places its bets, but in any event, it is not the only option for investors who wish to follow this theme.

There is no shortage of ‘challenger banks’ such as Virgin Money (VM.) and Aldermore (ALD) and there are two small companies that I personally hold. B.P. Marsh (BPM) is a long-standing investor in insurance industry start-ups and has a great record.  I also like Alpha Financial Markets (AFM). This consultant to asset managers also has a good track record, and has only recently given an encouraging trading update.

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