A sideways look at economics

Are you one of those people who absolutely hates shopping? Or are you spending as much on therapy to deal with your shopping addiction as you are on the latest designer brands? Either way, you’re not alone. According to, one study, around 1 in 5 US consumers feels stressed when going shopping, while more than 1 in 10 experiences high stress levels while buying online. However, there are still plenty of shopping enthusiasts out there. Half of men and 70% of women consider shopping a form of entertainment, another study found.

There is a lot to learn from the shopping world, particularly about what shapes our individual preferences and new emerging trends. For example, new ‘styling services’ have emerged that curate a selection of outfits tailored to a customer’s preferences and body shape, using a combination of algorithms and human stylists. This move towards personalisation reflects a shift away from the traditional one-size-fits-all approach, and is aimed at capturing the unloved and stressed-out portion of the market who finds shopping an anxiety-inducing experience.

According to another study, the pandemic has changed the way consumers shop and what they buy. A whopping 75% of US consumers have experimented with new shopping behaviours, such as buying different products, or switching brands or retailers. This has led to a loss of brand loyalty, creating opportunities for new brands and store own-labels. Just as importantly, the study says that 80% of customers who tried an own-label during the pandemic say they will keep using it. Consumers have different reasons for switching brands, but the main ones centre around the simple, but key, principles of availability, convenience and value.

It may seem strange to say this, but in many ways the financial industry is a lot less sophisticated in its approach and makes far less effort to appeal to final consumers. It still hides behind complicated jargon;  it lacks transparency on costs and the investment process; it also offers products whose investment underpinnings have evolved little since the 1970s. Whenever financial firms come to market with new ideas for the masses, the benefits of the purported innovation are often either too complex to understand or turn out to be smoke-and-mirror exercises to justify higher fees or meet a temporary fad. At a first approximation, retail investors are faced either with a lower tier of products with low fees that will deliver mediocre results, or with a higher tier of products that are more high-touch and bespoke, but also more complex and at a significantly higher price.

In economics this outcome is called a separating equilibrium. It is a situation in which people with different characteristics are able to sort themselves into different groups, based on their preferences, abilities and information. A separating equilibrium can be a good thing, leading to more efficient outcomes where each group can specialise in what they do best and serve the needs of their specific audience. It can also however be the result of gross inefficiencies if there are large differences in the information available to buyers and sellers. The consumer retail sector with its myriad of products, approaches and pricing solutions appears a much closer representation of the efficient outcome than the less segmented and murkier financial sector.

Regulation is part of the solution, but also part of the problem. (I’m going to reserve this topic for when I’m the mood for a good rant. Here, I will simply say that regulation resorts too quickly to box-ticking exercises with dubious effects.) What I want to emphasise instead, is that inefficiencies breed opportunities. The testable hypothesis that arises is that there ought to be a large section of savers who are currently underserved by the current financial product offerings. And testing this hypothesis we are! Enter RiskTailors, a joint venture between Fathom and some experienced financial services experts, offering managed portfolio services powered by Fathom asset allocation models and research. The idea behind RiskTailors is a simple one: deliver products that are competitive on both quality and price. RiskTailors is an extrapolation of the core values that have always underpinned Fathom. In particular, we seek to demystify some of the research, tools and ideas traditionally reserved for institutional investors and, as a result, democratise access to a wider set of investors.

Another core belief at Fathom is that small details matter. Take names, for example. In Romeo and Juliet, Juliet asks: “What’s in a name? That which we call a rose, by any other name would smell as sweet.” This expression has been adopted out of context to mean that labels are unimportant and that substance is more important than form. However, Juliet was expressing a wish: a wish that (sur)names did not matter in matters of love. As the plot unfolds, the reality of the importance of a name becomes sadly all too apparent. In everyday life, there should not be a clear supremacy of name over product. They should reinforce each other, strengthening the credibility of the brand by more clearly delivering what a customer wants. The name RiskTailors reflects this. It was picked as a way of staking our credibility on a superior understanding and integration of various sources of risk, rather than just hoping that our products would pass the smell test.

Perhaps the most crucial of all Fathom’s core beliefs is always to strive for long-term credibility. The ‘Tailors’ part of the name gets to this too, and is more than just a loose reference to the sartorial world. It directly hints at a world that sits between one-size-fits-all fast fashion and the elitism and exclusivity of haute couture. It conveys the idea of wanting to go one step further, and add value across different dimensions: from helping advisers to stay on top of the macroeconomic climate and have meaningful conversations with their clients, to building portfolios that go beyond traditional market volatility as the only definition of risk.

RiskTailors is also a natural extension to Fathom’s ability to embrace the latest trends as a source of growth and differentiation, such as the shifting consumer preferences highlighted at the beginning of this blog. For example, the RiskTailors investment process is intuitive, but it also makes use of cutting-edge algorithms on which we are very happy to lift the hood for anyone interested. Like in the world of shopping, advisors have to become significantly more open to new solutions in response to the evolving needs of their clients.

Embracing the new does not happen overnight. It is a process that depends on building trust, not unlike finding a tailor that understands your needs. Let’s start this process. If you are an advisor or a professional investor, come and join us on Wednesday 17 May for an online webinar (or register here directly). At the webinar we will provide insights into the RiskTailors investment process, and share key decisions from the latest investment committee.

Once you find a good tailor, you stick with them and we are confident you’d stick with RiskTailors — just as you have remained loyal to Fathom and this eclectic set of Friday blogs.

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