Controlling The Crazies

Recently I met with David Williams who has been instrumental in building Geldards into a leading East Midlands law firm.

Among numerous insights that David generously shared with me was his observation that you will employ people who are crazy and people who are sane. His job, he reflected, has been to make sure that every crazy person in his organisation was paired with a sane person.

Putting crazies with crazies is a recipe for chaos. But putting the sane with the equally sane means surefire stagnation.

I’m all in favour of giving my organisation a crazy edge, but I don’t think our business would work if we were completely bonkers.

Lamborghinis for Pensioners?

The Chancellor’s surprising Budget changes to the pensions regime obviously caught the opposition on the back foot. Given the complexity of current pensions legislation that’s probably understandable.
It was refreshing, though, to see some move away from the ever tightening grip of the state on the way we conduct our affairs towards a greater degree of freedom and choice. As a pension specialist, I certainly welcome this change which should make life easier for many and help rebuild some long lost faith in using pensions for retirement saving.


The idea of allowing people to choose how they use their own money was a radical one, but it hasn’t come before time. There’s a long history of government initiatives in the area of savings and investment that either didn’t work at all or resulted in unintended consequences. Indeed, the whole minefield of pensions legislation is an example of good ideas spoiled by excessive meddling.


So what has actually changed?

The new freedoms are not really new. We’ve had ‘Flexible Drawdown’ for a while now, which allows anyone with total guaranteed pension income of over £20,000 a year to take as much as they like from their accumulated funds. The Budget brought this figure down to £12,000 a year, meaning that someone with a full basic state pension plus at least £6,200 from a final salary scheme or annuity can now withdraw any amount they like from any additional ‘money purchase’ funds – such as a personal pension plan  – that they own.
As from next April, this lower minimum will be cast aside, and anyone over the minimum age for withdrawal, currently 55, will have full unfettered access to their funds at any time.


So what’s the catch, you may well ask? Why are the Government being so generous with your own money?


There’s a simple, one-word answer to this. Tax.
Any amount you draw out will be treated as taxable pension income in the year of withdrawal, so if you are already a taxpayer you’ll immediately lose 20% in tax. And if your other taxable income plus the withdrawal takes you into the higher tax band, that could become 40% or even 45% if you breach the top tax rate threshold.


Steve Webb, the Liberal Democrat Pensions Minister, was widely reported for commenting that anyone could use their pension fund “to buy a Lamborghini,” if that was their wont.


But queues at Lamborghini dealerships seem unlikely to appear. With a price of at least £135,000 for the cheapest model, an individual would need to withdraw at least £180,000 and probably much more to afford their dream car, even taking into account that a quarter of the fund could be taken tax free, in order to have enough left for the car after deduction of income tax. That’s why the Chancellor has forecast a bulge in tax receipts after the changes come into effect.


This kind of spending is likely to be well beyond the means of most pensioners. According to reports, the size of the average pension pot stands at around £25,000. However even this figure takes into account the significantly fewer but statistically important number with funds worth hundreds of thousands. One estimate suggests that a large segment of the population has less than £4,000 in their pension fund.


This low reliance on pensions could be to do with the law of unintended consequences I mentioned earlier. Successive governments have appeared hell-bent  on a witch-hunt against the entire pensions industry, with decades of negative publicity and oppressive legislation. Is it any wonder that the average man or woman is now completely antipathetic towards the whole subject?


Now more than ever people need good advice, if no longer about which annuity to buy (although that will remain the best option for a minority) then about how to make the most of their fund and pay least tax. For very many people, carefully investing and managing their withdrawals over time to match their tax and personal circumstances – something we at Chesterton House have been doing for our clients for years – will be easily their best option as a way to make their funds last into advanced age.


The Chancellor’s changes may just have ushered in a new era of personal responsibility for your own  retirement planning. If so, that would in my view be a Very Good Thing. What it does require, though, is a new breed of professional, independent advisers who can help people to negotiate this complex minefield with confidence. Frankly the personal financial advice industry hasn’t been in a fit state to deliver this before, but recent changes to the minimum qualifications required and the way in which advisers are remunerated are already having an impact and consumer confidence in advice should begin to rise.


With the future financial wellbeing of millions at stake, this is too important an issue to get wrong. Let’s hope that the Budget changes are just the first step into a brave new world of personal freedoms and the inevitable responsibilities that go with them.



Hire Great People, Then Get Out Of Their Way!

Sometimes the content for these blogs gestates over a period of time with various ideas coming together. Other times it just springs out of somewhere, often a conversation I’ve had with someone, and that was what happened today! So this blog is dedicated to you, David. I hope you find it useful.

We were talking about the problems of running a business and in particular finding really good people to be able to drive things forward for you. He had found a potentially really good candidate who could really take his business forward with lots of knowledge and industry expertise; but the asking price was too high. So what is reasonable to pay for a highly productive member of staff?

To help answer this question I turned to some of the people that I’ve found helpful in my quest over the years and the first one of those was Jim Collins. Jim has written a couple of books, one of which I found extremely helpful in formulating some of the philosophies in my business. It’s called ‘Good to Great,’ and it’s a classic. Some of the key ideas from the book are listed on Jim’s website at . Let me take just one of those for you now.


It’s headed ‘Disciplined people – ‘Who’ before ‘What” and the way that Jim Collins describes it is to imagine yourself as a bus driver. The bus – your company – is at a standstill and it’s your job to get it going. You have to decide where you’re going, how you’re going to get there, and who’s going with you. Most people assume that great bus drivers (read: business leaders)immediately start the journey by announcing to the people on the bus where they’re going; by setting a new direction; or by setting out a fresh corporate vision. In fact the leaders of companies that go from ‘good to great’ start not with ‘where’ but with ‘who’. They start by getting the right people on the bus, the wrong people off the bus and the right people in the right seats; and they stick with that discipline –  first the people, then the direction – no matter how dire the circumstances.


Collins illustrates this principle by telling the story of the CEO of Fannie Mae, the big mortgage Corporation in the States, David Maxwell. Fannie Mae was losing $1 million every business day and the board wanted to know what he was going to do to rescue the company. Maxwell’s response was to say, you’re asking the wrong question. To decide where you want to drive the bus before you’ve got the right people on it, and the wrong people off it, is absolutely the wrong approach.


He told his management team that there would only be seats on the bus for ‘A-level’ people who were willing to put out ‘A-Plus’ effort. He interviewed all of his team and told them all the same thing; this is going to be a tough ride, it’s going to be demanding. If you don’t want to go along, that’s fine, just say. But now is the time to get off the bus. No questions asked, no recriminations.


When he put that to all of his executives, 14 out of 26 got off the bus. He replaced them with some of the best, smartest and hardest working executives that he could find, and with the right people on the bus in the right seats he then turned his attention to the ‘what’ question, and only then did he try to address that. By the end of his time with Fannie Mae, Maxwell had turned a performance of losing $1 million a day into earning $4 million a day at the end. Getting the right people on board was crucial to that success.


Here’s another article by Jim Walton, President of Brand Acceleration Incorporated in America. He describes how a great business friend of his was running a highly successful organisation with just two support people in his office. When asked how they managed that work load the boss had one simple answer; ‘These are the best people in the industry. I make it a point to hire great people, pay them very well, and then get out of their way.’


He gives the example of another boss with a similar style. On one particular day, he says, he had a management related question that he reluctantly took to the boss. After asking his question, the boss calmly walked across the room, closed his office door, and came back to his desk. Sitting down he said, ‘Jim we hired you because you’re very good at what you do. You’re paid very well and I’m pleased with your performance. However; if I have to handle management issues for youthen I don’t need you. Other than our regular P&L meetings and occasional chitchat at the coffee machine, we don’t really need to talk. Do we?’


That’s what it means to hire great people, pay them well, and then get out of their way. If you can find someone who can be creative, productive, intelligent, efficient – and those people are out there – how much are you prepared to pay them? That’s the question I would ask. Because when you find someone like that you really don’t want to stint.


So really there are two questions here. Firstly how deep are your pockets; but secondly -and this is actually much the bigger question – are you the sort of person that can pay them well and thenget out of their way? That takes a lot of confidence, a lot of trust, a lot of discipline, but in my experience it’s the way to riches.