Richard Harbord: a meditation on the need for expertise
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Richard Harbord
A number of disparate things have caused me to meditate on the professionalism of local authority finance operations.
I began this train of thought at a recent Room151 round table on investment management and we had in attendance the very best in treasury managers from local authorities.
In some ways this group was self selecting because people who are interested in coming to these events are confident, knowledgeable and extremely professional.
I continued this train of thought when visiting for an organisation I work that helps the revenues departments in a number of different authorities. I couldn’t help but return to the the topic when discussing pension fund administrative performance at a recent pension board meeting.
Blips and career paths
Throughout my career, stretching back almost to Victorian England, I have been used to local authorities being extremely professional, their finances managed incomparably and the governance second to none.
Generally it all works extremely well. And yet from time to time there are inevitably blips – Barings, BCCI, Interest rate swaps, Icelandic Banks, to name a few.
The big issue for people who work in both investment management and pension fund administration, and even the management of business rates, is that the lack of a real career structure has led to a shortage of people with detailed knowledge.
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8th Local Authority Treasurers Investment Forum
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Ignoring pensions for the moment, the difficulty is that these services have to be provided by all authorities, big and small. Even before austerity, and the need to economise, it was difficult for the smaller authorities to have the necessary level of expertise.
In treasury matters even small authorities need a level of expertise to get the best out of treasury affairs, some of the authorities most involved in interest rate swaps debacle were small districts .
I have actually been involved in assisting three authorities whose accounts have been disclaimed by external auditors; that is to say they didn’t even consider them worth commenting on.
In the case of business rates lots of authorities are suffering from not having in-house expertise to deals with the huge problems now being faced.
In this case, of course, it was because business rates was centralised and it ceased to matter to local authorities whether they improved the amount collected and kept the list up to date.
Most authorities ceased inspection or investment in the service because it effectively produced no return.
Now the expertise that is no longer there is desperately needed but a new generation of officers with different skills are needed to do this.
But back to pensions. There are 89 administering authorities but they have great difficulty in finding senior managers with the right expertise to deal with what is probably the most complex service.
The number of different options under the various regulations in the Local Government Pension Scheme almost makes everybody’s pension an individual one.
New entrants
My three examples of expertise problems are not the same in how solutions in the short term have been found. Treasury management has a history of being covered by consultancy services. But there is a question about how far small authorities are prepared to go in using a service tailored to their individual needs rather than general advice.
We are not just talking about borrowing and investment and choice of counterparties etc but the whole integration of capital accounting to ensure that the net cost, or income, to the authority is optimised.
There are consultants in the business rates arena doing an excellent job but authorities of all sizes need to come to a greater realisation that their financial future depends on maximising in every way possible the amount collected. This means far more training of staff and investment in new systems to ensure values are maximised as well as rates collected.
A solution for treasury management is shared services between large and smaller authorities, in business rates each authority should be able to make a good return on staff investment.
Pensions is very difficult. It is an area that has not attracted professional staff for as long as I can remember. Those in charge have always been in pensions. Pension fund administration lacks the glamour of investment management but it is a vital service and more thought needs to be given to a proper career path to encourage new entrants.
As long as LGPS pays on average 80% below the UK Pension Fund median for its investment staff there can be no sustainable solution. LGPS has been run on a shoe string for decades and fund officers have been Herculean in their efforts to keep the ship afloat but it cannot be defensible to have approx. £200bn managed in this way, they need proper support and resource commensurate with the risks involved.
A very thought provoking article. Totally agree with M Jenson about paying a proper rate for the job. We are asking that decision makers make sound choices on the behalf of the taxpayer. The financial failures of the last fifteen years demonstrate how important high quality decision making is in all aspects of investment management. Given the amounts of money concerned it is reasonable that such roles should attract premium rates.