Giant lumbering
For reasons we can only marvel at, Montgomery Investment Management has attracted some incredibly talented individuals. Perhaps it’s the ‘learning with humility’ culture, or perhaps it’s the size and the associated ability to respond quickly and remain flexible.
One reason for considering this latter point is that so many of the individuals that make up the amazing team at Montgomery, have come from much larger organisations; David from Hunter Hall, Tim from Gresham Partners, Ben from the RBA, Scott from BlackRock, Andy from Kynikos and myself from Merrill Lynch and BT, among others.
Observing the rapid rise of social or peer-to-peer lending, online foreign exchange services, digitally-based budgeting, financial management, stock market research and portfolio management services, we cannot help but think that bank fees are under some threat. Nor can we deny that the banks and financial service incumbents are unable to respond to the lower prices being offered, because the cost to their businesses is greater than the benefits of fending off the upstarts.
So it was with interest that Scott Phillips shared with us some of the thoughts, of former News Corp boss Kim Williams, from last week’s 14th Annual Wraps, Platforms & Masterfunds Conference in the Hunter Valley.
Here’s some of the ideas and observations Mr. Williams shared:
An entrenched compliance culture has “completely inoculated” large financial institutions against risk, leaving them vulnerable to ‘disruptive’ start-ups.
“Innovation is absolutely allergic to bureaucracy”.
The financial industry should all be “very keen students of what’s happened in the media”.
The media industry has been the “best example of the damage that hubris does in an existing business”.
“…If you don’t develop an appetite for risk-taking, over time you fail.”
“Companies empower bureaucracy and empower middle management – who essentially are there to slow or stop [innovation].”
The unusually high earnings power offered by large financial institutions has attracted a disproportionately large pool of talent and brainpower from other, arguably more worthy sectors, such as alternative energy and medical science. But perhaps indoctrinated ‘fear of risk’ will see the cycle of aggregation and disaggregation in the financial sector spur a fragmentation once again, lower fees for consumers and spilling talented individuals back to where their talents can be more profitably employed.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
David T
:
Peer-to-Peer lending institutions, such as Australia’s Society One, could be much more interesting places to park cash than traditional term or online deposits. WBC appears to have noticed this and taken an interest into Society One.
hedley.calvert
:
I was reading Richard Branson’s views on big business recently. It was interesting to note that he will deliberately break up a businesses that gets too big into smaller units (no more than 100 employees). The idea being to avoid bureaucracy and to keep them nimble and innovative.
Five years ago I moved from a company employing several hundred employees to one that has around 60 and can appreciate exactly where he’s coming from. I now work for a company where decisions are made fast, employees are empowered, there’s a fantastic team culture, staff are motivated and there is no politics and it’s OK to take risks. I’ve forgotten what office politics and bureaucracy look like and business is booming.
I would not be surprise if the team at MIM have had similar experiences.
Lloyd Evans
:
Hi Roger,
Very interesting points.
I am one of those bank employees, hopefully one that falls into the large pool of talent!
I have been watching the changes in the banking sector more closely of late, mainly due to the following changes:
step up in peer to peer lending
FIIG and Mark Carnegie proposed moved into corporate bonds
PE funds looking at smaller EV values for targets (~$20m).
Alternative foreign exchange providers.
All of these aspects have disruptive attributes and have the potential to impact bank profits.
In addition there is also the possibility (i believe) for peer to peer lending in corporate debt market.
I agree that the Banks are not likely to take on more entrepreneurial risk, however have the potential to mop up smaller disruptive players, like WBC stake in Society One.
The biggest issue I see is the rise of global payment portals like global collect. Global Collect can support multi currency payments efficiently, especially micro payments.
Disclaimer: writer does not own any bank shares.