Personal Investment Authority Research Articles

A Conversation with Paul T. Bateman: Dealing with Global Multinational Mergers

Paul T. Bateman is Global Head of J.P. Morgan Fleming Asset Management for Europe, Asia and Japan. He has been actively engaged in the financial services industry since 1967 after graduating from Leicester University. He began his career in the Actuarial and Technical Department at Save & Prosper and advanced to Group Marketing Manager and then Vice-President for Marketing of First Investment Annuity Company, a U.S. subsidiary of Save & Prosper, in 1972. In 1988 he was appointed Chief Executive Officer of Save & Prosper Group Limited and a Director of Robert Fleming Holdings Ltd. Paul also has served on the Boards of LAUTRO, the Life Assurance and Unit Trust Organization, and the Personal Investment Authority before being named Chairman of Robert Fleming Asset Management Limited in 1995. Following the merger with Chase Manhattan in August, 2000, he was named Global Head of Chase Fleming Asset Management. Following the J.P. Morgan-Chase merger in December, 2000, he became Global Head of the combined asset management business outside of the U.S. J.P. Morgan Fleming Asset Management operates across 4 regions: the Americas, Europe, Asia and Japan. With assets under management of over $600 billion being serviced by nearly 700 investment professionals, J.P. Morgan Fleming Asset Management is one of the premier global investment management companies in the world. Nicholas Mathys: Could you briefly go into some of the basic operations in terms of size, geographical coverage and so on of J. P. Morgan-Fleming Asset Management? How have the mergers, first with Chase and then with J. P. Morgan, affected your operations? Paul Bateman: We now have something like six hundred and twenty (620) billion U.S. dollars under management globally which puts us comfortably into the top ten of asset management businesses worldwide. About a third of those assets are fixed interest in cash and two thirds in equities. If you take it from the Fleming standpoint which was where I came from, pre-merger we managed 90 billion U.S. dollars. Then post-Chase that went up to about 160 billion U.S. dollars. Fleming's assets were primarily equity and Chase was primarily cash with a little bit of fixed interest and some equity. J.P. Morgan has added the remainder ($450 billion) in roughly equal proportions of cash, equity and fixed income. So you can see that the merger was transformational; moving the companies from pre-merger state of mid league to post-merger state of being clearly in the top ten. We operate across all of the key markets in the world now, U.S., Europe, U.K., Japan, Asia, with a growing engagement in emerging markets. The culture issue is one where we now have a truly global brand, but a global brand which has genuine local decision making and a local face in each of the geographic areas in which we operate. So, for example, in Asia we operate with a management team whose career commitment is to Asia and we are seen as an Asian company with a global resource behind it. Likewise in Japan, the U.K., Europe and the United States. N.M.: What kind of leadership challenges did the merger create for you? Paul Bateman: I think the major challenge was that prior to the merger you had organizations which had closely knit management teams and which were operating with flat management structures. The size of the merged entity made this impossible to sustain. For example, I will relate to you a conversation I had with one of my senior managers yesterday. He said that before the merger he was very close to the strategy of the company involved in giving input directly into the strategy decisions. What happened post-merger is that, because of the increased size, there was an extra layer between him and the top and he found himself cut off from strategy discussions. And because of the wider range of new business introductions being given he was busier and was focusing much more on process and task execution rather than strategic development. …

Continuing professional development in a financial services organisation

Organisations covered by the Personal Investment Authority regulations on continuing professional development are provided with an opportunity to create a strategic approach to people development. This paper reviews the findings from research carried out at one organisation, which highlights how this might be achieved.

Early warning systems: Helping to steer a safer course

In this paper, the author examines the steps that Barclays Retail Financial Services has taken over the last few years to help identify potential risk to investors at an earlier stage. Barclays Bank plc is regulated by the Personal Investment Authority (PIA) and has a regulated sales force of around 1,000.

Effective quality assurance in the personal investment industry: part 2 ‐ a way forward?

This paper is a response to a consultative document by the Personal Investment Authority (PIA), the UK financial services industry regulator. Part 1 of this paper examined if the quality management principles developed in manufacturing during past years could be useful in addressing financial services regulation. The Personal Investment Authority in applying quality assurance currently relies exclusively on the specification of processes (e.g. in its Rule Book) and checking firms’ compliance to these specifications. The paper suggests that it would be more effective and efficient instead to specify “outcome” (covering both the product itself and its appropriateness for the particular customer). A total system is defined, including issue of standard product specifications (a model is given) and a customer‐appropriateness specification, an effective and affordable quality assurance check of compliance based on sampling inspection of outcomes, and a practical system of penalties for non‐compliance.

The Personal Investment Authority Ombudsman Bureau in the United Kingdom

The Personal Investment Authority Ombudsman Bureau in the United Kingdom

Effective quality assurance in the personal investment industry: part 1 ‐ an impossible task?

This paper is a response to a consultative document by the Personal Investment Authority (PIA), the UK financial services industry regulator. The PIA exists, not because the industry is a monopoly or concerned with health or safety, but because of the unsatisfactory quality it has provided to its customers. The approach of the paper is to examine if the quality management principles developed in manufacturing during past years could be useful in addressing this problem. The paper appears in two parts; the second part proposes a different type of regulatory system.

R v PIA ombudsman & PIA ex parte Burns‐Anderson Independent Network plc

The Applicant in this case, The Burns Anderson Independent Network plc, was authorised to conduct investment business under the Financial Services Act 1986, by virtue of its membership of the Personal Investment Authority (PIA). An allegation had been made to the PIA ombudsman that the Applicant was involved in the operation of a holiday time share business known as the Villa Investment Plan. An action group of dissatisfied time share purchasers from the Villa Investment Plan was formed and lodged a complaint with the PIA ombudsman claiming compensation for losses amounting to £8m.

THE DISCLOSURE REGIME FOR UNIT TRUSTS AND OTHER NON‐LIFE PRODUCTS

In July 1994, following a lengthy development period, new rules were announced for the disclosure of information in the case of life and pensions products. The new rules, which were scheduled for implementation on 1st January, 1995, contained details of how investors should be informed about product content, the effect of charges and expenses and commission or remuneration paid to advisers. In September 1994 work began on the development of a comparable regime for unit trusts and other non‐life products. In July 1996 the Personal Investment Authority announced its conclusions and rules for this range of products will be implemented in May 1997. This paper contains details of requirements.

COCKING V PRUDENTIAL ASSURANCE COMPANY LTD MACKRELL V GAN LIFE & PENSIONS PLC SILAVANT V GAN LIFE & PENSIONS PLC SZILAYAGA V TSB PENSIONS LTD AND TSB LIFE LTD PARKER V HILL SAMUEL LIFE ASSURANCE LTD GREENWOOD V IRISH LIFE ASSURANCE PLC AND MILL‐SMITH INSURANCE BROKERS LTD

This case concerned applications that the aforementioned six actions be stayed. The six separate actions arose out of the personal pensions misselling that in turn forms the basis of the SIB guidance that initiated in October 1994, the Review of Past Business on Pension Transfers and Opt‐outs. That review is currently being imple mented by the Personal Investment Authority (PIA) and its members and is designed to identify individuals who have been sold personal pensions in circumstances so inappropriate to their individual needs that it constitutes a breach of the product provider or Independent Financial Advisers' (IFAs) compliance obligations under the Financial Services Act (FSA) 1986. The review is also designed to compensate such individuals by way of their re‐instatement to the financial position they would have been in had the misselling not taken place, and also provide a limited degree of compensation for any resulting distress suffered. The six Plaintiffs in this case ranged in age and occupation (indeed one of them was retired) but each in his or her own way was very typical of the estimated thousands of individual victims of pensions misselling. They included a retired miner who had been recommended to transfer his benefits from the mineworkers' pension scheme to a private transfer bond, a 34‐year‐old nurse who had opted out of the NHS superannuation scheme in favour of a private pension and a 50‐year‐old school janitor who had been advised by a pensions salesman not to join the local government superannuation scheme which he was eligible to join but rather to take out a personal pension instead. These individuals and the three other Plaintiffs brought actions relying on s. 62 FSA 1986 for compensation for loss suffered as a result of being wrongly advised by the six sets of Defendants that a personal pension policy was better than their occupational scheme.

UNDERSTANDING THE IMPACT OF THE INVESTMENT SERVICES AND CAPITAL ADEQUACY DIRECTIVES

The Investment Services and Capital Adequacy Directives must be implemented no later than 31 December 1995. The Personal Investment Authority (PIA), a self‐regulating organisation under the Financial Services Act 1986, recognised in July 1994 and intended to be the lead regulator for retail financial services business, will become a competent authority for the purposes of these Directives and will be making new rules for the ‘investment firms’ among its members in order to give effect to the Directive requirements. The author, in a recent talk reproduced here, describes the new requirements, indicates PIA's approach to implementation and assesses the likely impact on the members of PIA.

Regulation of Retail Investment Services

How much regulation do the consumers of non‐bank retail investment services want? The arrival of the Personal Investment Authority raises questions about the necessity, costs, structure and accouni‐ability of regulation, as well as its potential moral hazards.

INTERNAL COMPLIANCE VETTING

The purpose of this paper is to suggest to Personal Investment Authority (PIA) members, and particularly to independent members of PIA, that their successful application to join the PIA and their submission of an outline compliance plan are only the planning stages of the major construction exercise that is to follow. Commitments have been given that will require a great deal of internal control, record‐keeping and reporting and it is necessary to consider the nature of the superstructure to be developed from the compliance plan blueprint.

THE PIA: STOP‐GAP OR LASTING SOLUTION?

In June 1994, and despite serions misgivings front the finance industry and investors alike, the Personal Investment Authority (PIA) was ‘recognised’ as the new retail self‐regulatory organisation (SRO)for the investment business industry in the UK. This paper traces the background to this event and the development of the PIA from inauguration to recognition. It also examines the concerns expressed by its critics and the findings of the all‐party Treasury and Civil Service Committee, which produced an interim report on the subject. It concludes by considering some alternative reform proposals and asking what the future holds for the PIA.

Regulating Personal Investment

This paper is concerned with the marketing of packaged retail financial products in the UK, viewed as part of a general regulatory mechanism applied to all investment business services. It considers the general principles which lie behind regulation as well as the particular provisions made in the Financial Services Act 1987. We discuss the problems associated with the operation of this structure of regulation and the reasons for concern which resulted in the Clucas Report (1992) and the subsequent revisions of the regulatory structure which saw the introduction of the Personal Investment Authority in July 1993. In the light of these findings it is difficult to believe that this will be the last of the changes.