Other than our own Mr Grumpy (Mark T), most people will be winding down to enjoy the Christmas and festive celebrations with their family and friends. We have therefore forgone the pleasure of writing our weekly blog of topical observations and information about Financial Services. Instead, we wanted to take this opportunity to wish you all a very merry Christmas and hope that 2010 is all that you would wish for.

We will be back with new information and updates in the New Year and hope to see you and your businesses prosper in 2010.

Best wishes from us all at AT8 (even from Mr Grumpy himself)

As a non-geek, I read with interest that ‘so called’ 4G mobile networks have been launched for pilot in Norway and Sweden with new customers expected to use the service from early 2010. Indeed, O₂ successfully tested their own network at their Slough head office yesterday (15th Dec). However, this does not mean that we will see the service available in the UK for some time. Indeed, the fact that there are currently no 4G handsets commercially available means that users will have to use a dongle and a laptop to access the service.

My comment about ‘so called’ 4G is that what is currently known as ‘4G Long Term Evolution (LTE)’ does not fully comply with the IMT-Advanced requirements (oops, slipping into geek territory!), but this will no doubt be resolved in due course and my questions are more about what it means for the user, and when will it happen?

At the risk of straying back into some technical information, the expectation (backed up by the test results) is that 4G will allow download speeds of 100 Mbit/s and uploading at 50 Mbit/s whilst travelling at speed relative to the base station – with the potential for 1Gbit/s if the user is stationary. If we compare this to the current 7.5 Mbit/s achieved with HSDPA (used by most 3G phones and dongles today) and users of 4G could see an increase of over ten times what they can get now. There are a number of other objectives that have been set for 4G, but I would sum these up as faster, better and more resilient…

The issue for me is less about the technology itself and more about what we will be able to do as a result. As was said about Rupert Murdoch’s Sky – they don’t sell the ‘satellite in the sky’, they sell the sports and movie content it can deliver. In the same way, we should consider what we could do with the capacity and capability of 4G. It seems to me, that with this increased capacity, we could start to deliver genuinely performant applications via the phone/hand-held device or the laptop. Browsing, on 3G just isn’t good enough at the moment to be a realistic, reliable and a routine alternative to a connected or wireless broadband solution. I have used my iPhone on a number of occasions on the train and whilst it works to a degree, it isn’t quick enough for someone as impatient as me.

AT8 has been involved in a number of discussions and evaluations of adviser technology and the hoary chestnut of being able to use online technology (such as SaaS) in front of a client because of concerns about the reliability and speed of mobile communications. In 1998, I predicted that we would have resolved mobile comm’s within 5 years – how wrong I was! Even now, with the prospect of 4G being a technical reality, the question remains as to when it will be routinely available to the masses. Sweden and Norway have been leaders in the field of mobile for many years, indeed much of Europe is still ahead of the UK and this could get worse if we prevaricate for too long.

We have talked much about SaaS, IaaS and PaaS recently. However, with the potential for performant mobile, this trend could accelerate to a point where people take the provision of remote services as the norm. When people ask if we need the capacity that is being talked about, they are usually looking at the position from a basis of what we can do today. I still remember the painfully slow internet speeds using 19.2 kbps and 28.8 kbps modems way back in the early 1990s and found the frustratingly slow speed was a disincentive to regular use. With the instant access of broadband, we now have richer and more performant applications as well as media such as video being taken for granted. 4G could see the mobile delivery of what is usually accessed via broadband and may even see a whole new generation of additional functionality being added as a response to the speed and reliability of mobile. We are seeing much more interest in mobile banking and this, along with other applications will most likely accelerate the growth in use of the increasingly ubiquitous handheld device for some time yet.

The UK has been constrained in its mobile development largely because of the eye-watering investment that was required for 3G. Other EU countries have put us to shame and it is to be hoped that the politicians and Telco industry do not repeat the past mistakes over the auction of the new spectrum licences that have already been delayed and are now supposed to take place in 2010. So when will my original 5 year prediction become a reality… as a guess, I would say that 2012 could be that point – i.e. three times longer than I originally thought!

Our world, our economy and our industry are going through significant change. As actions are being taken on a macro and micro scale, there are arguments for and against the benefits of these actions being played out every day. It got me thinking about whether we devote enough time and effort to understand and model the causes and effects of what we decide to do. On a global basis we have seen the dramatic impact of the economic crisis and much has been written about the root causes of that situation including the Turner report that we have written about in our blog earlier this year. Without oversimplifying the situation, it was interesting that the original intention and effect of securitisation was a positive reduction in risk to the original lenders. The eventual effect [unintended consequence] was a significant increase in risk being placed upon our institutions and our economy. So, one would hope that looking at causes and effects of problems should help us to learn for our future plans and actions. Indeed, we can use cause-and-effect diagrams (known as fishbone or Ishakawa diagrams) to model the effects of a particular problem.

Whilst these are useful, the question that I am looking to address is how we get better foresight and so try to model and identify what are the possible future effects – intended, unintended unforeseen consequences – of a chosen action. Should we assume ‘Newtons law’ (pleasure – pain?) of there being an equal and opposite reaction for every action? Some would argue this will be the case with our current global stimulus strategies where we are simply staving off one set of problems to suffer another set of problems in the future. If this is the case, has anyone really sat down and mapped out the interdependent actions and reactions that flow from what we are doing now? In reality, the situation is likely to be very complex and urgency is often a justification for not doing such an analysis.
There are a range of mathematical models including the ‘Chaos Theory’ (the behaviour of certain dynamical systems to sensitivity) that look are deterministic and random modelling to measure certain outcomes including how small (fractional), apparently insignificant changes can have far-reaching disproportional effects. For example ‘the Butterfly effect’ which asks if the flapping of a butterfly’s wings on one continent can create a hurricane elsewhere. There is a so-called law of ‘unintended consequences’ which is affected by the world’s inherent complexity, perverse incentives, human nature (and stupidity), self-deception, failure to account for other cognitive or emotional biases. Robert K. Merton (the man who coined the phrase ‘self-fulfilling prophecy’) listed five possible causes of unanticipated consequences:

1. Ignorance – we don’t know what we don’t know (it is impossible to anticipate everything, thereby leading to incomplete analysis)
2. Error (incorrect analysis of the problem or following habits that worked in the past but may not apply to the current situation)
3. Immediate interest, which may override long-term interests
4. Basic values may require or prohibit certain actions even if the long-term result might be unfavourable (these long-term consequences may eventually cause changes in basic values)
5. Self-defeating prophecy (fear of some consequence drives people to find solutions before the problem occurs, but the fact that it is no longer a problem is unanticipated!)

If we look at the causes of the economic crisis, we can see how a number of these elements played a part. Indeed, if we ignore some of the political ‘point scoring’ currently taking place, the actions that have been taken to address the crisis and the consequences that flow from them are being debated in a number of short and long term – usually negative – scenarios. It has been said that the use of very clever mathematical modelling in banking has been a cause of some of the problems. However, if we are better able to apply effective modelling to improve outcomes, this should be a good thing and we should avoid sweeping conclusions such as ‘all maths is bad’ or that ‘all bankers are bad’. Nevertheless, we must be sure that the use of such modelling techniques are understood and tested for sanity rather than being followed blindly.

We have seen an increasing use of ‘deterministic’ and ‘Monte-Carlo’ (stochastic) modelling in Financial Planning software in order to help customers to see the effects of action or inaction on their own future circumstances. Whilst we should not overcomplicate things just for the sake of it, there is no doubt that such tools can help advisers and customers if used and understood properly; for example funding properly for retirement and lifestyle protection. Equally, there are people out there that simply want to make a decision based on what they can afford within a limited budget. Getting the balance between sophistication and potentially high cost of advice versus simple and cheap is important. Too much emphasis on the former could result in people not making any provision at all, rather than doing something that may be inadequate, but is still better than nothing.

So, should we expect to benefit from serendipity, or should we ensure that we understand and assess our current and future needs then put a plan of action in place to deal with what we know and expect could happen. Perhaps we should also take into account Mr Murphy’s law too and so expect the unexpected!