17th April, 2024 - Webinar replay

In conversation with Rory Sutherland - an insight into consumer behaviour

Phil Bray

Good morning, everybody. Welcome to April’s Yardstick webinar where we are joined, as we’ll see in a moment, by Rory Sutherland! Welcome Rory, thank you for coming and spending an hour of your time with us.

Rory Sutherland

Hi, it’s a pleasure to be here.

Phil Bray

Dan, let’s go straight into some housekeeping if that’s okay? Anybody who has been to a Yardstick webinar before will know, we’re always joined by Abi and Dan, to help us along the way. Dan, do you just want to do a bit of housekeeping and explain how we’re going to do things today if that’s alright?

Dan Campbell

Sure thing. So I’m Dan, I’m the Head of Branding and Design here at The Yardstick Agency. What do we all need to know for today’s session? Well, to start with, we have a number of fresh faces in the crowd, looking at the names here. So, welcome to your first Yardstick, webinar. Of course, the familiar faces among you will know that we encourage questions, engagement, general opinions, and disagreements. Keep them classy, of course. So get stuck in! Phil will lead with his own questions today, but I’ll be picking up plenty of your questions to ask Rory. You can do that by using the Q&A box or the chat; I’ll be monitoring both and I’ll read them out at regular intervals. Depending on where we end up in 60 minutes time, we’ll sweep up as many as we can before we all have to wave goodbye. Now, this is a safe space, really safe. We’re all here to learn and there’s no such thing as a daft question. I mean, Rory might disagree, of course, but throw it out there, throw it forward, and let’s see how we get on. Finally, there’s no doubt you’ll want to rewatch this. So Yardstick’s very own Abi Robinson will be tirelessly working behind the scenes to make sure that a follow-up email with a recording of today’s session and any notes or resources we mention will be sent out later today. Now, this is the part where I switched from being a panelist to an audience member and make way for Phil Bray and Rory Sutherland.

Phil Bray

Cheers Dan. So, Roy, for anybody who’s been living under a rock, and hasn’t read your book with a fantastic cover -I love the picture on the cover- and hasn’t heard you on your TED talks or with Stephen Bartlett on The Diary of a CEO podcast, give us a bit of your background, if that’s okay, for a couple of minutes, Rory? Introduce yourself to the audience today.

Rory Sutherland

Yes, I have a very boring career path, which is I joined Ogilvy as a graduate trainee in 1988. And I’ve been there ever since, although, in completely different job functions. So it’s not quite as monotonous as it seems. I also write for The Spectator, Wired, and other publications. I suppose the central insight I have is that life, and business even more so, consists of two complementary components. And we’re ever more and more focused on one of them, to the detriment of the other. A very simple thing which I always talk about is, apologies if you’ve heard it before, if you look at bees, the insects, bees have developed a really clever little mechanism, which is called the waggle dance. They do a little dance to tell other bees where to go to find known preexisting sources of pollen and nectar and water, I think, I can’t remember, it might be resin, they collect about three or four different things. They tell the other bees where to go and the direction they dance, relative to the vertical, tells the bees the direction in relation to the position of the sun in which they should head and what distance station travel for to find this wonderful preexisting source of nectar. The length of the dance, by the way, is representative of the quality of the available resources. But that’s not because the bees have a stopwatch and they go, “Oh, he’s danced for 36 seconds, it must be really good.” It’s because the longer you dance, the more bees see your dance, and the more bees head off in that direction. So it’s a brilliant built in feedback loop. As the resource gets depleted, they dance for less time, so fewer bees go off to pursue a diminishing resource. It’s beautiful. But the thing that astonished bee scientists was that – it varies obviously, according to a whole range of factors – about 20% of bees ignore the waggle dance, they go off at random. At first they thought this is very strange, why would you develop this brilliant process and then allow that. Bees have been around for 20 million years, a lot longer than humans, how come they haven’t evolved bee compliance officers who demand 100% adherence to the waggle dance to meet their nectar collection target for quarter three? They thought this was very strange and then someone modelled it as a complex system and realised that if you don’t have a certain amount of randomness and exploration – they’re called Scout bees – if you don’t invest in Scout bees, you get trapped in a local maximum, you get over-optimised on the past and eventually starve to death because you become obsessed with exploiting what you know, not with discovering what you don’t yet know, or discovering what’s changed. To work, by the way, the scout bees when they find something new, have to share the finding. What this means is that the hive can adapt over time when the environment changes, very similar to a business, in business, the environment changes, it also means that it has a certain degree of resilience, because they’re not over-dependent on one particular source of energy. Let’s imagine they had a brilliant field, every bee went to this field, and then some cows break in and eat all the flowers. At that point, where do they go next? They’re dead. They realised that the hives that over-optimised on exploiting what they knew, effectively don’t exist anymore because they went extinct. Now there’s a similar thing known in computer algorithm design as the explore-exploit trade off. It’s the trade off between exploiting the data you have and exploring the data you don’t. You can see this pattern in detective work, for example, there’s the investigative phase, which is “We don’t yet know enough, we don’t even know who did it.” And then you might say, there’s the evidential phase where you compile the evidence, and you build it up for a court of law to be convincing. There’s this trade off effectively between open ended questions and and then effectively optimising your answer, and it is called the explore-exploit trade off, even though it isn’t really a trade off, they’re two complementary parts of the whole. What I’d say is that in business, and partly because of the dominance of economics, finance, procurement and other kind of reductionist professions, and management consulting, we become obsessed with optimising efficiency at the expense of exploring possibility. And the innovation of scout bees, will, to the uninitiated, look like an inefficiency. Okay, if you imagine the obedient bees probably look at the scout bees and say ” They’re a bunch of dilettantes. the last five journeys they went on, they didn’t come back with anything.” But that’s not the point. One time in 100, those scout bees come back with a fantastic game-changing discovery and if you don’t get the ratio, right, I think that’s when it goes wrong. I talk a lot about trains and my argument is, yes, when you’re building a railway like High Speed 2, you will need a load of engineers, should you get the engineers on their own to actually plan and define the role of the railway? And the question I’d ask is, “What would High Speed 2 look like if the initial brief had been given to Disney rather than large engineering firms and consultancies or economists for that matter?” Economists defined the role of HS2. Economists always assume pre-existing demand, they assume that people only do the things they want to do, and therefore your job is to deliver that as efficiently and as cheaply as possible. Disney doesn’t work like that. Disney goes, “How do we create something from nothing?” When you give the brief for High Speed 2 to a bunch of engineers, they define success as transport X people in Y time between central London and central Manchester, say. They’d look at capacity, speed, frequency of service, punctuality, all the things you can quantify and measure. I would argue that Disney, bear in mind Disney did something much more remarkable than any train company, because train companies simply got people to go to places they already wanted to go to. Disney has got hundreds of millions of people to go to Orlando, not by providing transport infrastructure, but by providing a reason to go to Orlando (if you believe there’s a reason to go to Orlando) but Disney created it. The way Disney would have framed the brief is different, Disney would have framed the brief as “How do we make the journey between London and Manchester so enjoyable, A) that people who didn’t want to go to Manchester ended up going to Manchester anyway because they want the journey, and B) That people feel stupid taking the car?” Those are the real questions we should be asking. But economists and engineers aren’t asking that question, they’re asking the question in purely utilitarian and operational terms. As a consequence, there’s a massive opportunity cost in lost imaginative problem solving. I think there’s something really interesting there because I think there is the potential for magic, but economics doesn’t believe in it. Here’s a really interesting case in point which proves economics is wrong. There was an article in the Telegraph a week ago, about a couple who moved to Litchfield. They’d been living abroad, they sold their house abroad, they wanted to move to Litchfield. But they couldn’t find a hous they wanted in Litchfield, they looked at all the estate agents, nothing. And so they reversed the question. What they did is they narrowed it down to about five streets in Litchfield, which are their favorite streets. Then they went on Zoopla, and they ruled out all the houses that they couldn’t afford, and then they ruled out the houses they didn’t want, because they were next to the traffic lights, or too small, or whatever it might have been. They wrote a handwritten letter to all the people living in the houses they were prepared to buy. None of those houses were on the market, seven people replied, five people met them, three people said, “Yep, I’m prepared to sell you the house at the price you offered.” And they ended up buying a house. What they did there is something different, they created rather than exploited. An economist would think this is crazy, because anybody willing to sell their house would put their house on the market, and therefore their house will be listed with an estate agent. What I think that experiment proves is for every person whose house is on the market, there are actually three or four, maybe even six or seven people who would be willing to sell their house at the right offer. And there are all kinds of psychological reasons for that. If you think about it, there’s a lot of asymmetry in a lot of things. One of you probably wouldn’t spend a lot of time trying to chat up Cameron Diaz, but if Cameron Diaz wrote to you and said, “Would you like to go for dinner?” This is a slightly male centric example, but you get my point. Most of you will probably say “Yeah, all right, I’ll get I’ll go and have dinner.” There’s an awful lot of asymmetry going on in the world, and yet economics pretends it away and assumes that everybody who wants to go to Manchester will go to Manchester by whatever means is most efficient, it assumes that everybody who wants to sell their house will list their house as being for sale, and that just isn’t true. There are possibilities out there that you can create, alongside the possibilities you can exploit. And we’re doing the second job, we’re not doing the first. You must all know this, because if you’re a financial adviser, you know that yes, there are people who are actively in market for a financial adviser, but actually, they are a minority of people and it’s probably quite difficult to find them, and so on and so forth. What you have to do as a financial adviser is create more opportunities than you find. I think it’s a really interesting and important job and it’s a job which everybody gets wrong, both consumers and advisers in that they think their job is to optimise the wealth of the customer. Actually, I think it’s a bit like being a personal trainer. I’m not a great example of this, I grant you, but the value of a great personal trainer isn’t the person who suggests you shift from doing weights to cardio or that you start doing spin classes rather than doing pilates or whatever; the real value of that person is they get you to do something. The real value of my financial adviser isn’t really that he optimizes X versus Y, it’s that he provides me with the confidence to act. First of all, he gets me to save something, I work in advertising, left to my own devices I’d piss all my money up the wall. Various financial advisers got me to start saving 20-30 years ago. As a result, I’m now 58 they go “Where did all this money come from?” The second thing they do is they give you the confidence and trust to do things which you kind of know might be rational, like paying off your mortgage, but you can’t help feeling “Would I be mad to do this? would I suffer regret from doing this? Is this a mistake? Is this a sane thing?” And they give you the kind of impetus to make a big decision like that, which left your own devices, you’d postpone indefinitely. So I think the value of the relationship with a financial adviser is only partly about optimising the money you actually save. I think that’s a third of it, don’t get me wrong, but we make it everything and that’s not really what it’s about. A great financial adviser who gets you to save quite well is more valuable than a financial adviser who isn’t very persuasive in getting you to save but when you do save, it’s wonderfully optimal. It’s rather like the joke that hairdressers are effectively psychiatrists who cut your hair. A hairdresser is basically a therapist to also cuts your hair, is always the joke. Actually the the role of a financial advisor is a much bigger job than the narrow definition manages to capture.

Phil Bray

Thank you for all that. One of the barriers to people taking financial advice and experiencing those benefits you talked about Rory, is a lack of trust in the sector.

Rory Sutherland

Yeah, absolutely.

Phil Bray

Sector over the years. You and I are old enough to remember the endowment mis-selling scandal. We’ve had British Steel not too long ago, a couple of weeks ago Nationwide was told to take some adverts down or rework them. Could you talk about how the financial services sector can build trust and credibility with the people who can benefit from them?

Rory Sutherland

Yeah, I think you’ve been handed a massive gift here and nobody’s talking about it. Everybody particularly in marketing is talking about AI at the moment. Over the last five years, there’s been another hugely important, really, really important development in technology, which we’ve failed to acknowledge. partly because it involves humans. The whole tech world is obsessed with coming up with solutions that don’t involve face to face contact. Basically, Silicon Valley is an automation project. I was talking to someone at Deloitte this morning and I said “Do you ever get someone who comes along with a business, where part of the business model says we’re going to really invest in customer service. We’re going to employ really good people on the telephone, we’re going to pay them really well. We’re going to keep them loyal, we’re going to let them work at home. So they stay with us for ages and are really experienced.” That never happens. Every single business proposal now is basically a job destruction scheme. My view is that Zoom – what we’re doing now – is that you can’t evangelise it, because it’s 20 years old. You can’t say, “Hey, this technology is brilliant.” Because technically, with Skype, it’s been around since the late 90s. But that’s not what’s important about the technology. What’s important about the technology is since COVID, it was normalised, you can reasonably expect a 68 year old to know how to make a Zoom call and it doesn’t feel weird anymore, and people don’t necessarily see it, as the cheap alternative of face to face meeting.” I think the reason that’s really important for financial advisers is that Zoom combined with presentation of spreadsheets, slides, etc. is the perfect medium for delivering financial advice. Put bluntly, I don’t want my financial adviser to come to my home all the time. It’s too much hassle, I’ve got to put on a coloured suit, tidy the house, buy coffee and biscuits, get home from work early, make sure my wife’s there and get all the paperwork ready, because I don’t understand half this stuff. But equally, these decisions, which are too deep to be made with a click of a mouse, or, over a phone call or over email. There’s a brilliant chart of the ideal mode of transport for a particular journey. It starts with 100 yards, 200 yards, 500 yards, 1000 yards, a mile, five miles, 10 miles, etc. obviously for short journeys, it’s walk or wheelchair, or whatever it may be, then you have this very steep, but actually quite narrow spike, which is the bicycle, which is really good for two and a half mile journey, if it’s not raining, it’s on the flat, and if you’re under 50 years of age, and so forth. Then you get bus, then you get train; trains are very good either if you’re going into a really big city, and they’re really good if your gourney is 200 – 500 miles, basically. Then you get the aeroplane for journeys of 700 miles or further. Overarching a huge swathe of this is the car, which is pretty damn good if you need to travel a mile and a half, and it’s pretty damn good if you need to travel 250 miles; it covers an unbelievable range of journeys. So, applying that model to modes of communication and media, you got all these things on the left, like email, WhatsApp or text messages or whatever, they’re all variously synchronous or asynchronous, they’re textual, and they’re brief, but they’re low touch. Then you’ve got a little bit more personal: the phone call. Then you have this huge yawning gap between the phone call and the face to face meeting, which is a big commitment, it’s big effort, it’s big investment. This is a webinar, I wouldn’t have canceled this webinar because I realise there are 329 people who’d be a bit disappointed. But if this was just a Zoom call between the two of us, and I had to postpone, well it’s no biggie, right? I would have felt a bit of an asshole and you might have been slightly peeved, but it’s nothing to the extent of you traveling to London, and then me saying, I’m terribly sorry, I can’t see you. That’s massive social embarrassment. So there are all these virtues of the Zoom call, which is it’s just the right amount of interpersonal action for financial services purposes.

There is a really interesting business which I recommend, I am to declare a small interest, I’m kind of like their official evangelist, it’s an Australian business called Meet Magic. The way it works very simply is, how do you get someone to agree to give you an hour of their time? The website is meetmagic.org, by the way. The way it worked historically in business is you’d invite them on a golfing day, this is a bit 1980s but you know what I mean, right? You go and find some entertaining thing, you’d host a conference in a fantastic hotel or resort, you’d invite them there. And out of a sense of obligation or reciprocation, you could then chat to them about financial services, or whatever it was your company offered. Meet Magic takes this and does it in a very interesting way. They say “If you’re prepared to give us 40 minutes of your time on Zoom, we’ll donate £200 or £500 to a charity of your choice. And you know several things, you know they’re serious because they’re paying money to have the conversation, In a way, you know it can’t be a complete waste of time because even if it goes nowhere, you’ve given £200 to your favorite charity. Also, you know, they’re going to put in a professional effort in presenting to you, they’re going to make an effort. This isn’t just a case of a junior tire kicker finding a prospect and then hammering on about the value of investment, they’ve actually made a decision to talk to you. That strikes me as a really interesting concept. In a sense, you could argue the whole advertising industry shows that there is a value on people’s time and attention. Well, you can’t in a business context bribe people. If I went to a company and said, I’d like to talk to you about advertising, here’s £500 in a brown envelope for half an hour of your time. That’s illegal. The economy would be more efficient if we were allowed to do that, but we’re not. There’s a good reason why not, because it spirals out of control. The whole principle of there’s £200 to a charity of your choice, if you’re happy to listen to me, strikes me as an extraordinary way to monetise attention but also, there’s a guarantee of a high quality conversation because the person is invested in having the meeting. This isn’t just a case of speculative time wasting tire kicking “Well, I’ve got this lead, I might as well hammer the hell out of it.” It suggests instead “We wouldn’t be doing this if we didn’t think there was a high probability that we were a good match.”

Phil Bray

That leads on to something else that I want to talk about, or I want you to talk about because nobody’s here to listen to me today, they’re here to listen to you Rory. That’s the disconnect between the life changing benefits of financial advice and financial planning.

Rory Sutherland

Yeah, which I only recognised at the age of 58 by the way, I spent about 25 of my years thinking “What a pain. Why am I paying all this money in?” And then suddenly, at 58 you go, “Geez, I have options.” Yeah. I might make a point, I’m going to make a political point here, which is I do think that the tax system is absurdly weighted to the benefit of the elderly and that we tax income, we don’t tax wealth. We don’t tax capital gains on property. Most of the NHS is redistributing wealth from wage earners who don’t get ill to retired people who do. And then now I’m nearing retirement, I keep being told, “You can take your money out of your pension tax free, live off that for a bit, pay much more of your current salary into your pension and effectively get a double dose of tax relief.” I must admit, half of my reaction was “Wow, that’s great.” And the other half of my reaction was “Where were all these tax breaks when I was 32, had two kids and really needed the money.” Okay, I had kids at 35 actually. So there is a serious point to be made, which is that we are absurdly overgenerous. This is really contentious, you weren’t expecting this. One of the problems of pensions is it allows people to stay in homes which are far bigger than they need. My brother lives in Berkshire and basically 80% of the people on their road are childless empty-nesters living in five bedroom homes either alone or with a partner. What that means is there’s a trillion pounds worth of wealth, sitting in property, basically sitting inert in property. Meanwhile, the people living in those properties are worried about the price of a lemon and going to Lidl, to get cheaper groceries. I never envisaged when I was a kid a world in which millionaires were skimping on buying lemons, but we have actually seen this utter absurdity. So one of the most important things I think you might be able to do is persuade people to downsize. Because we already have the property we need, it’s just in the wrong hands. I work in advertising, one of the reasons I quite like redistribution of wealth is that when you give money to poor people they spend it and when you give money to rich people they hoard it. One thing I do feel very passionately about, is that partly because of the failures of trust in the financial services industry, the property industry in the UK has become the financial services industry for many people. So basically, instead of having a really big pension, they’ve ended up in a really big house. Property is a terrible investment. Now, you’re gonna say, “Hold on, I’ve made a fortune on my house.” Yeah yeah yeah – if you’ve got a load of shares, and you’re going to Lidl to buy your lemons, and only at eight o’clock when the lemons are sold-off cheaply, you can sell some of those shares and buy better lemons, and you don’t have to move house or have a massive loss of status, or any of those problems. Property is an awful way for people to accumulate wealth because the realisation if you want to liquidate that wealth, yes, there’s equity release, which is not entirely brilliant, because it’s basically re-mortgaging your house, but in some ways, what we’ve done here, because of the failure of getting people to invest in meaningful, productive, economic activity, is we’ve allowed people to basically treat a land speculation bubble as the principal source of their savings and wealth. And it’s a very bad form in which to hold wealth. You might argue a second home is better, because you can sell a second home, but your first home is a terrible way to hold wealth.

Phil Bray

So how do we connect? How do the people on this call, the advisers, the planners, connect with more people like you in your 30s? How do they demonstrate the benefits of working with them?

Rory Sutherland

One thing I believe in strongly is that employers have a big role, you saw the extraordinary success of the opt out pension. I think that it’s complicated because there is such a profusion, there is a famous thing called the paradox of choice, which is there are so many financial entities competing for your attention that you basically become blinded by the headlights and end up doing nothing. Imagine you have a simple choice and the profession was monopolistic. Interestingly, there might be a two phase solution which is that the government encourage you to save, that money goes into a boring savings pot, and you can decide to engage with investment advisers with that savings pot. But the first point is you create a pot of savings. The second thing I’d do, is I’d redesign the pension legally, to allow people to draw down money or borrow against it at a low rate of interest. Let me explain. When I’m 55 there’s an awful lot about my future I kind of know, I don’t know about my state of health, that’s a random variable, I don’t know my longevity, it’s a random variable, but I’m probably not going to be selected to play for Manchester United first team, I think that’s a realistic thing to write off. There are an awful lot of future life possibilities, which have basically been narrowed down. Health and other things narrow down what you’re able to do. When you’re 25, you haven’t got a clue what’s going to happen. You might even argue that when you’re 25, it’s not a great idea to save because your principal motivation is securing a high quality life partner. So spending money on dating, which may look irrational to a financial adviser, might not be a bad investment. There are so many uncertainties when you’re 25 or 30, that the idea that you put this money away, and you don’t see it until you’re 55 is maddening. When you’re 25, being 55 is like science fiction, it’s like being on another planet, when you’re 45, you start to think that way, when you’re 50, you definitely do. So, having some sort of system where you’re saving this money, but you can draw it down if you need to make a deposit on a house, if you need to move to Latvia, if you need to get divorced, there are so many random uncertainties here, that having a pension that has no short-term value, it only has long-term value is a fundamental failure of the design of the product. This is why I say that the property is a very bad investment, because there are people who are living in a million pound house, but they can’t replace the shock absorbers on their car. Now, in the same way, you don’t want to be that person who has a fantastic pension, but can’t afford to replace your washing machine. And so having some sort of mixture in a pension, of long-term benefit and short-term benefit seems to be such an obvious idea and yet, it’s been designed by economists. Economists are not really like human beings, they’re kind of like annaly retentive wealth optimisers, who don’t really know how ordinary people think.

Phil Bray

Dan we’ve got some comments coming in on Rory’s manifesto for changing pensions. Do you want to –

Rory Sutherland

There is an idea that I will share from a guy who’s an absolute genius business writer called Roger L. Martin, a Canadian business writer. I agree with the point about ISAs being such, that is fair, but equally, you could design an ISA where you could somehow borrow against it, for example, an ISA credit card with a lower rate of interest which is secured on the basis of your ISA. That’s a fair point, it is accessible. But Roger Martin thinks that one way you could solve this problem is instead of making the first £10,000 you earn every year tax-free, he proposed, and there was a Canadian political party which were interested in this but didn’t get elected, that the first £100,000 you earn in your life should be tax-free and after that, you’re taxed on everything. He argues that if you front-weighted earnings, you would inculcate a really good savings mentality in people. It’s a very interesting thought and as a policy, I have to say, it’s a really interesting thought experiment.

Phil Bray

It’s good example of your innovative thinking.

Rory Sutherland

Yeah. He’s a very interesting guy, Roger Martin, I thought that was fantastic.

Phil Bray

Dan, let’s have some questions. I’ve seen one come in from Guy going from –

Rory Sutherland

I liked that comment by the way, creating demand is all about being helpful. There’s an awful lot to this, which is about reciprocation and actually, you’re right. Where you do have a problem, undoubtedly, is that the real benefits, people don’t understand the compounding effect. Our brains and it’s a bit complicated but we’ve been trained at school to think linearly and the compounding effect takes me by surprise. One consequence, for example, is the APR interest rate, which is annual. I would argue that APR serves to make borrowing seem cheaper than it really is, and investment seem less exciting than it really is. At the moment, if you have a savings product, you have to say 2.3% APR. If you were allowed to say double your money in X years, I think far more people would take up that product. But as it is, for purposes of comparison, you have to advertise everything on the basis of its APR and that understates the compounding effect of saving and the compounding effect of borrowing. So in some ways, it’s doubly misleading I think.

Phil Bray

Dan lets have some questions.

Dan Campbell

I’d like to go for David’s question. David asks, “We talked earlier about creating demand from consumers. How would Rory approach that?”

Rory Sutherland

Yeah, it is a really interesting question and it’s also very difficult because it’s very moment-driven. Yes, in one sense, you have target markets and target audiences, but the thing you’ve also got to spot is the target moment. There are vast swathes of people’s lives where they don’t want to engage with any of this stuff, but if you catch someone at the right moment, then they’re very engaged and very keen to do more. There’s a very funny thing, I’ve got a friend who’s an expert in philanthropy and so obviously, he targets people who’ve just sold a massive business say. The interesting thing he learned is that you don’t approach them asking them to be philanthropic when they sell their business. When they sell their business, they go and buy a massive house in France, and they go around the world, and they do all the things they promised they’d do when they sold the business. You wait a year, or maybe two years, when they’ve got bored of all that stuff and then you ask them to do some philanthropy. I think they are very similar things, you have to catch someone at exactly the right moment, which is what makes it so difficult. We’ve noticed that with the banks, they believed that they had this fantastic possibility to cross-sell, and they haven’t really succeeded that much, have they? Not nearly to the extent to which you might expect.

Phil Bray

Dan do you want to keep going with your questions?

Dan Campbell

Yeah, I’ve got a couple of I’m picking a few that-

Rory Sutherland

The point that there’s no education about this stuff in schools is absolutely right. One thing I always say actually is get your kids to work in a shop or in a restaurant, because it’s like a free MBA, because you learn everything about a business in microcosm. The extent to which we allow people to leave school, they’re literate, and numerate but financially illiterate is really worrying. I’ll tell you a story about this which I know from my marketing experience, I knew somebody who was back in the day, and I can mention them because the brand no longer exists, he was the marketing director of Rumbelows. And they did some research, which showed that when they were advertising, the APR on which you could buy, say, a washing machine or a television, I hope it wasn’t the majority of their customer base, but it was a large double-digit group of their customer base, thought the bigger the APR, the better the deal. So they’d walk past the Rumbelows branch and see 27% APR. And they go, “That’s brilliant. Dixon’s is only offering me 15.” That’s just an example of how terrifying this is.

Dan Campbell

Right, the next question I’m going to ask is, perhaps a slightly incendiary question from Guy, who asks what your thoughts are on people not being able to buy cigarettes, if they’re born beyond 2009.

Rory Sutherland

It’s actually quite clever. The New Zealand government adopted that but then the government failed so I think it was never enacted. It’s not a crazy idea because there is a difference in restricting people from starting something, and telling people they can’t do something that they used to do. Some Conservative MPs voted against it on an interesting point of principle, which is that generally, in government, we don’t discriminate on the basis of age and that if you’re allowed to do something at 49, you should be allowed to do the same thing at 23. Obviously, there are questions of age of majority and 18, and all that sort of stuff but there are some really interesting questions there. It’s not a totally crazy thing, and it at least shows someone thinking differently. Now, one of my big beefs about the tax system is, it doesn’t discriminate between someone who’s earned £200,000 per year for 10 years in a row. You might argue that if you earn £200,000 per year for 10 years in a row, well, you’ll probably be able to afford to pay 45% tax on the top increment. What happens if you’re a teacher and you’ve worked all your life as a teacher, then you make it up to Deputy headmaster, and for the last three years of your working life, you finally get into the higher end. A lot of headmasters would be in the 40% tax band, I don’t know about the 45% tax band – some probably if it’s a really large school. To some extent that three years of high earnings is a reward for all your past work, and it’s only going to happen to you for three years of your life. Is it fair that the rate of tax you pay on a year’s income doesn’t make any acknowledgement of what you’ve earned in previous years? So maybe this principle that we don’t discriminate on age is actually kind of wrong. It’s always struck me as strange how many people are opposed to higher the 40% tax rate, even though most people don’t pay it, until you realise that most people are either hoping to pay it one day and indeed, many people will pay it one day later in their life, or you run a business, such as you’re a scaffolder and you just have two fantastic years because someone’s building some enormous thing next to you and you get the contract. But it does seem to be [inaudible] we should make a distinction between three years at the end of your life where you finally get promoted to headmaster versus someone running some hugely lucrative business making a fortune for 25 years. We don’t make that distinction; we treat every single year’s earnings as a snapshot. It goes without saying we don’t let people… There is an argument that you could tax property on the extent to which there are unnecessary rooms in it. I think Council Tax is massively regressive in that you will pay more Council Tax on a £250,000 house in Barnsley than you will do in many cases in a £1 million house in Westminster. It’s unbelievably stupid as a system. And do we need taxes that get old people to downsize? Yeah, I think we do. I’m sure they would be better off downsizing. The last thing you want to be is elderly in a house that’s really expensive to maintain, and really expensive to heat. And if you look at the allocation of family houses, families are right at the bottom. So, let’s say you’ve got a big house, the biggest likelihood is that two retired people live in it, then there’s a chance that it’s student accommodation, or that you’ve split it into five and you’re renting out to five bedsit people because you can make more money. A family is outbid by students, a family is out-wealthed by old people, then you also have things like migration where people who are coming over to earn a lot of money for a short amount of time, are happy doing things called hot bunking where they just share a property between lots of people. So, for the family home, the family is about number five on the list. We had a case, I’m telling you this story because it’s an extraordinary reflection of how bonkers the property industry was. We were looking to move from Canary Wharf back into London, this is our offices at Ogilvy, and one of the three properties we were looking at was a new cylindrical building being built near Waterloo station. One day I came along to the meeting, and it had just dropped off the list, I said, “What happened that cylindrical thing, near Waterloo?” and they said, “Oh, the developers decided it was more profitable as student housing.” We’re like, the fourth biggest advertising agency in London and we’re outbid by a bunch of students? Do you want to know what we really need? Nobody’s going to like this, but what we really need is trailer parks. Let me just explain. The phrase trailer park is a marketing disaster, I’ll freely admit this. We need to find a way in which people can invest in a place to live without placing a massive bet on land value, because most of the value of the property is not the house, it’s the land and the planning permission. That’s the value, a combination of land and planning permission. And what’s unfair is if you have a boom in something like tech stocks or the Dutch tulip boom of the 17th century, that doesn’t really matter. Because I can get by without tulips, and I can get by without tech stocks. I can’t get by without a place to live and what we need is property for people who don’t want to invest the greater part of their wealth in land. And so the trailer park would be a system where you get a really good designer, you get Johnny Ives, to design some interesting form of mobile housing. You could go to a pub car park and the pub could grant you permission to live there without the usual building problems. The other thing as someone who loves technology, and it’s good that consumers have money to spend on new technology because it brings new benefits. The thing that’s always worried me about the people who own a £1.3 million house in Fulham, is this: What’s the point of being rich in 2024 if 80% of your expenditure consists of buying something which you could own if you are poor in 1924? In 1924, that three-bedroom house in Fulham there would have been a postman living there, it might have been somebody middle class, a railway clerk, but it was nobody super rich and they’re spending all this money nowadays. So, one of the interesting things that I’m permanently baffled by is how few Londoners actually take the cash and move out, particularly with the possibilities of flexible working. Because is it really worth it? In other words, you’re paying, let’s say £500,000 to be in London. Now there are upsides to being in London and there are downsides. I would argue, personally, that the relative upsides of living in London versus a nice country town are much smaller. If you’re over the age of 30, and you’re married, they’re much smaller than they were 30 years ago, because of things like the internet. When I was a kid, I grew up in a Welsh market town near Monmouth. If you wanted to buy interesting Hi-Fi equipment, if you wanted to buy obscure records, or if you wanted to go and see a Korean film, you had to go to London or Bristol. You had to go somewhere much bigger. All of that stuff is now universally available in the UK. You can live in Aberystwyth and watch a Korean film on Netflix, you can order an obscure book from Amazon, you can order a Michelin star meal from the Isle of Wight actually, it’s called You Be Chef, okay, the Michelin-starred chef makes you the meal and posts it to you at Aberystwyth. The deficit for living in (London nowadays is huge). I went to Manchester in 1989 from London and let me tell you, even Manchester was total shit compared to London in 1989. There was probably a good music scene, I didn’t know about all that but apart from that, it was a dump. In terms of artisan bakeries and coffee shops and all that other stuff, that’s completely levelled out now, in fact, arguably, you get more interesting restaurants and food in Margate than you do in London, because the property is cheaper so people can afford to experiment. That is something which I find eternally fascinating, the fact that people in London don’t just go “Shit, I’ve basically got a lottery win here”. Look at it backwards, here’s a nice little persuasive technique. I have this friend. This story always fascinates me. The friend of mine knows a couple, he was born in Norfolk, she was born in London, they were both teachers. They both bought flats in London when they were working in the late 80s and early 90s. Then when they got together, they sold their flats and bought an F-off house, when you could still afford to, somewhere like Clapham, it’s now worth about £1.4 million. He wants to move back to Norfolk, she wants to stay in London. Someone asked me to kind of adjudicate, she can’t envisage not living in London, he says “Look with the money from our house. We could buy a much nicer house in Norfolk and never work again or we can teach in Norfolk and still have unbelievable holidays” She says “I can’t leave London.” The only point I made is, can you imagine someone in Norfolk, living in a nice house in Norfolk, they suddenly win the lottery and get £1.3 million and they go, “That’s brilliant because we can move to a really shitty house in London and work for the rest of our lives.” Could you imagine it happening in reverse? You can’t, can you? No one would do that. So there’s something there about status quo bias, this is why I recommend you read all the Daniel Kahneman books because you have all these little things like loss aversion, status quo bias, and the endowment effect. – Absolutely right, Paul, spot on. – For those who have a place in London they may have this terror, of course, that if they move out of London, first of all, what if property prices double again, they’ll feel like they’ve missed out and they also feel they’d never be able to move back again, which is a sort of rational fear, I suppose.

Phil Bray

Let’s do some quick-fire marketing questions.

Rory Sutherland

Absolutely, yeah.

Phil Bray

Dan, let’s go for some of those. Let’s tick some of those off.

Dan Campbell

All right. I’m going to ask Philip’s question Philip asks, “I’d be interested to get Rory’s thoughts on prospecting. If he had one year to get 100 clients, how would he go about doing it?”

Rory Sutherland

That’s a really interesting question. One of the things would be building a little negative, find a little negative to flip into a positive. Hi, Justin, excellent. Justin is my financial adviser by the way, and I partly chose him because of the excellence of his zoom setup. He’s got an absolutely fantastic professional webcam set up. So I would copy Justin in that, go and invest in SLR cameras, a webcam, ring lights, all that stuff, because a brilliant phrase by an american.com entrepreneur said to me was “Your webcam setup is your $2,000 Italian suit of the 2020s”. I would prospect over Zoom simply because of the extraordinary efficiency of it and the lower degree of commitment. So I’d really focus on that as a channel. I’d also look for (a differentiator). Robert Cialdini and various people have always said that there’s a sort of sort of thing where, if you say, “There’s one thing I don’t do.” – You could sell yourself as being quite boring because everybody else sells themselves on being able to outperform the market, and if you actually sold yourself on the losers game – Has anybody read this paper it’s famously called The Loser’s Game, It’s a famous paper in financial services and I had a friend who worked one of the investment firms, I should remember which one it was, it was not Lazar, it was one of the other ones. He said, “Every other financial firm is trying to be in the top ten all the time or the top five.” And he said, “Actually, we have a different approach, what we regard as successful is we’re not in the bottom half for ten years in a row. That’s our definition of success.” You could adopt an interesting philosophy, which is rather like the barbell approach that Nassim Taleb advocates, which is spliting your wealth into two. This is the stuff you can’t afford to lose, and that is almost copying from bees. This is exploit, this is the stuff we can’t afford to lose, we absolutely need this, then we’ll take 10% and we’ll put it into things which have finite downside and potentially limitless upside, which is Nassim Taleb’s point. Having a kind of having a kind of distinctive philosophy. I always thought that philosophy was great. It wasn’t at PIMCO. Where did he work before PIMCO? I’m trying to remember what it was. But I thought that was a brilliant, brilliant investment philosophy. “We’re not trying to be at the top 10, that’s slightly meaningless.” As we all know, quite often, the way you get into the top 10 in one year is by having a living catastrophe the next year, “We’re never in the bottom half” is an absolutely brilliant distinguishing feature. The other one is much more conversation about wider life goals. That’s one thing I’ve been very grateful for with Justin. Because so much of this conversation is spoken as if it’s simply a wealth optimisation problem, just “You’ve got wealth, you need more of it.” Well, one, there’s tax efficiency, which is hardly irrelevant, but then there are far bigger questions like “What kind of retirement do you want?” Some people will want to give up work, they hate their job, they see retirement as the reward for their years of hard work and they want a high degree of self-indulgence whereas other people may be quite happy with a modest retirement. So asking philosophical questions like that, because after all, the biggest question, anybody probably needs to answer is “Are you prepared to downsize?” And I have this fascinating issue at the moment, with two family members who are skint but absolutely paranoid about the idea of downsizing to a completely irrational extent. So, important philosophical questions like that are actually really interesting. A lovely bit of financial advice which is fascinating, is about how bad it is to invest heavily in your primary residence. You might argue that buying a secondary residence isn’t that crazy, because if you need to sell it, you can sell it and in a few weeks, you’ve got the money, you don’t have to move house. This is from Elizabeth Warren, who is the Democratic senator for Massachusetts. She wrote a book called the double income trap in which she argues that what has happened, and I think this is broadly speaking true, is the fact that now most households are double income households, most of the gains from that haven’t gone into consumption, they’ve just gone into rising property prices. The government has done brilliantly out of double income households, because they get twice as much tax. The property market did very well out of them because suddenly you had two incomes to pay for a house. Houses in great school districts in the US unfortunately, you could argue both women and men didn’t do very well out of it because most of the incremental wealth went into buying a house, which was now twice as expensive. Elizabeth Warren rather amusingly says, “You’re better off going and buying a hot tub and taking a cruise than buying a really expensive house” I thought that was very strange financial advice. But no, because if one of you loses your job, if you have a problem, you can stop buying hot tubs, you can stop going on cruises, you can turn the hot tub heating of and just let it freeze over, but if you’ve got a really expensive mortgage, there’s no escape. It’s an interesting point but it does terrify me because everybody goes “Safe as houses” which is sort of true, but actually, your primary residence being your principal source of wealth accumulation is a psychological disaster. It’s also an economic disaster. The economy would be better off if my parents in law sold their house and spent their money on crack or going stock car racing. That would actually be better for the economy, I’m not sure it’d be morally preferable, but in terms of having this extraordinary repository of wealth tied up in this totally inert asset, it’s a disaster. You can’t eat bricks, Exactly.

Phil Bray

Dan, we’re drawing to a close, do you want to pick one final question for Rory? Have you got a killer question from the audience?

Rory Sutherland

One other thing I would do is I would teach people psychological wealth management. There’s very good colleague of mine in the advertising industry, he always says, “We got everything wrong in advertising.” So we never paid people that well, but we gave them amazing company cars, and a big expense account. And as he said, “The job of the employer isn’t to make your employees rich, it’s to make them feel rich.” and if you’ve got a blinged up car and you go to a good five-star hotel occasionally, (that might be how they feel). But one thing I think is important is helping people reframe what wealth is because when the conversation is just a numerical question of wealth accumulation, that’s not a very interesting conversation. Whereas if you said “Not only am I going to help you be rich, I’m going to help you live richly. In other words, these are areas where you can spend, which I think are pretty good.” What are the things you should actually buy in terms of goods that really pay back? So getting into consumer advice territory is a really interesting distinguishing area. “Wealth is what all you’re left with after you lose all your money” is kind of true. We are faced with this completly, absurd choice of consumer goods, some of which, to be honest, the yoghurt makers etc. they end up in the back of the cupboard, there are other things where you wish you’d bought them five years before. And there’s a financial adviser who had really good data on the products that really delivered lifetime happiness. This book called Happy Money by Michael Norton at Harvard, that would be a really interesting approach to financial advice. I bought one of those Quookers – it’s boiling water from your tap. When I did it, it was partly because my wife was doing up the kitchen and I thought I’ve got to have a gadget out of this, it can’t just be worksurfaces. Half of you is going “I’m spending 800 quid on a kettle? This is insane.” But actually, once you have one of those things, they’re absolutely magical. You’d never go back, Japanese toilet, same thing. So that would be a really interesting financial adviser who advises you like the famous FT magazine, How To Spend It. Someone saying “These things are actually life-enhancing, these things are pretty trivial.” I think that would be really fun. the happy money book is called Happy Money and it’s co-authored by a guy called Michael Norton, who I think is at Harvard Business School. He’s just written another book, I think this is one of his, called The Ritual Effect. There you go. Which, is also probably an interesting read. I’m so glad that behavioral science has got into this world because it was turning into a mathematical conundrum and actually, that’s not what it’s about at all, really.

Dan Campbell

Let’s leave on one practical question then. And I think David’s question is probably that. So David asks, “As a small company with a small budget, what channels would you prioritise when marketing?”

Rory Sutherland

I definitely regard Zoom as an epiphany because I keep going on about this, but I really think it’s that important. I think, funnily enough, in the AI world, I think personal service will take on an altogether new value because it will be, in a way, how you distinguish yourself. I think this is an area which is too personal, there’s too much money at stake for it to be simply left to accountants and an economists. There’s too much personal preference at stake, people are two different. One of the worst, the worst crimes of economics – has anybody read Gary’s Economics by Gary Stevenson, who wrote the book The Trading Game? Yeah, it’s really interesting and one of the points he makes, which I totally agree with him on is that the single representative agent models in economics, which treat an average as representative of the whole is an absolutely terrible model, because it doesn’t capture inequality, because you can’t have inequality within a single person. It doesn’t capture the fact that when you put up interest rates, it affects two classes of people in completely different ways. It doesn’t affect the fact that with quantitative easing, you make the rich, massively richer and other people poorer. So, I think the point he makes there is really interesting. This is too big of a decision to be made remotely. Now, I’ll tell you a lovely story about that. I mentioned the Quooker thing, that funny little tap that produces boiling water on demand, I’d really recommend. I got in touch with them and said “We’re having our kitchen done, we’re interested in this” and they said “Well, we’ll give you a demonstration in our showroom.” And I said, “Where’s your showrooms?” It’s in Manchester, I said “I’m pretty keen on this tap, but I’m not sure I’m going to take a day off and travel to Manchester to go and visit your showrooms.” They said “No no, it’s all virtual.” And they got me and my wife was slightly indifferent but my daughter was really keen on one of these things too, so they got the buying unit, me and my daughter, this is another really important part of Zoom. The buying unit is the household to some extent, or it’s the couple, it’s not the individual. So getting the two people together, and we sat there and they took us around, they had about six cameras set up and all this stuff which they showed us. Go and ask them! I don’t want to bombard them, but go and ask Quooker for a demonstration of their tap online, it’s a really beautiful example. The other thing is there are great people on YouTube. Jimmy Carr said the other day, YouTube became the biggest TV station in the world and nobody noticed. There are brilliant financial people on YouTube. If I were a financial adviser, I’d find the best of those people or the best of those clips and just send them out, send them out to my client base. Has anyone watched James Hoffman on coffee on YouTube? He was the world champion barista. I’m weary to get you into him because three hours later you’ll be going and spending £1500 on a coffee grinder whose burrs have been crafted by Lithuanian nuns. It is a spiral, a rabbit hole into insanity. But what’s fascinating about it is the right presentational skills provide infinite fascination. I keep discovering people on YouTube, there’s a brilliant piece someone posted which is “Why buy to let is now a mug’s game” This guy, he’s in the kind of kitchen with three lights behind him, you probably know who I’m talking about, but he just has the capacity to demand attention. If you’d told me five years before that, I’d be sitting there captivated watching a financial adviser, talk about something I would think “That can’t be true, you can dress things up, but not that much” But the very best practitioners of this stuff. It’s sheer genius the capacity that some people have to completely captivate you with what seems like an arcane and technical topic and they’ve done all the work preparing the graphics and everything else. So I’d use those guys.

Phil Bray

Thank you so much, Rory. There is a lot of love coming through the chat for you quite a few offers of dinner as well. Dinners and drinks Rory. People offering you bedrooms, drinks, all sorts of things Rory

Rory Sutherland

Ha! Fantastic.

Phil Bray

Thank you so much for spending an hour with us today.

Rory Sutherland

It’s a pleasure.

Phil Bray

It’s been an incredibly insightful hour. We’ll be sending a recording of this out to everybody who registered for today’s session. I should do a little ad for our next month’s webinar. Abi will kill me if I don’t. So, 10am Wednesday the 22nd of May: Everything you need to know about client surveys in 2024. Four reasons you should run them – consumer duty is not one of those by the way, the questions you should ask, how to maximise responses, and most importantly, the 10 things you should do with your client survey results. In the meantime, thanks, Abi, thanks, Dan, and most of all, thank you Rory.

Rory Sutherland

Thank you.

Phil Bray

I am off to Google Japanese toilets.

Rory Sutherland

Absolutely.

Phil Bray

Cheers Rory, see you soon. Bye.

Rory Sutherland

Bye bye.

Dan Campbell

Cheers guys, Bye.