The day before, by chance I had received a mailing from the firm that I thought in those days was the best direct mail marketing firm in the investment field. I say the best marketers deliberately, because I was always less impressed by the quality of their recommendations. I suspect that the level of initial commission they earned was more relevant to them than whether the investment would be good for the client. (I won’t mention their name, although a few owners later they did go spectacularly bankrupt.) I had brought the mailing in that morning. It was as always brilliant and I loved the opening gambit in the letter. “We make no apologies for once again recommending this investment to you.” It was brilliant stuff. My letter to Theresa was therefore easy to write. “Theresa, tell me when you are back, tell me when you want to start and this is your job. Have a look at the enclosed mailing pack. I want us to be better than them. Yours sincerely, Peter.”

We finally had to change our computer systems. The little Pet Commodore was no longer up to the job and no one was writing software for it any more. By then, IBM had committed what looked like one of the biggest commercial errors of all time by producing what everybody now knows as a PC (personal computer). IBM had decided to make the PC using “open architecture”: in other words, anyone could build them. Even more amazingly, it had allowed a third party to produce the software for the operating system. It meant that any manufacturer in Taiwan, Korea or even back home in IBM’s native America could produce a PC and know that all the software that had been written would be compatible with the machine.

We had already bought our first PC and Spencer Hall was helping us write software for dealing in unit trusts. It was a system that we called Dealing Book. The simple fact was – Hargreaves Lansdown was reaching the size where running the business off small computers was no longer viable. All the big computer manufacturers were trying to make us buy what in those days were called mainframe computers. I knew about them, of course, as I had worked in the computer industry ten years before. All I remembered about them was that they were costly and unreliable, needed specialist staff and were not compatible with each other, even for peripherals. In other words, a Burroughs line-printer wouldn’t work on an IBM computer and a Honeywell terminal couldn’t be connected to a Sperry Univac computer.

Computer manufacturers and suppliers were often naughty too. I remember one line-printer that was marketed in the early 1970s which was available in three models: 60 lines per minute, 120 lines per minute or 180 lines per minute. They were also priced accordingly, with the fastest costing twice as much as the slowest. Contrary to what you would expect, the slow model cost more to make than the faster ones. That was because all three printers were identical. They all ran at 180 lines per minute but the two slower ones had a logic card in them which deliberately slowed them down. The whole industry was rife with such con tricks. Today, when everything more or less plugs into everything else, no manufacturer could get away with such ruses.

One day Spencer Hall told me that the future of computers would be intelligent terminals connected to a huge central data storage system known as a file server. This was then the leading edge technology. Whether through naivety or bravery I was persuaded to go down the route of buying a file server and attaching numerous IBM PCs to it to form what is called a local area network. No major user in the UK had yet made the same move and, because our business was growing so rapidly, at one stage Spencer reckoned that we probably operated the largest such system in the South West of England. These systems now are commonplace throughout industry.

At the same time, the original word processing program that we had bought known as Wordcraft sadly became obsolete. I was particularly upset because, while I could use Wordcraft, I never learned how to use IBM's equivalent word processing program. We then went out and bought an off-the-shelf database for the ridiculously low cost of £200. It was called Cardbox and lasted for something like 10 years. The author and owner, a Mr Kohanski, was a real gentleman. I negotiated a deal with him early on so that one license fee would cover any number of terminals. Theresa learned to use this database very skilfully. It enhanced our ability to contact clients. And it improved our filing and client information records. When we finally had to replace Cardbox with a fully relational database (of which you will hear more later), the Kohanskis told us that our system had the most records and the most users of any Cardbox system in the world.

Meanwhile, Stephen had been searching the market for suitable office premises. It turned out that a building that we had looked at briefly before we found Royal York Crescent had almost a full floor available. At 6000 square feet, the space was roughly four times the size of Royal York Crescent. Stephen took me down. We were met by the agent and we opened a door into an open space which looked bigger than a five-a-side football pitch. We both stood there open mouthed. “Pete,” said Steve, “have we really grown this big?” I suspect at the time we only had about 17 or 18 staff. It was a huge commitment but then Fate took a hand again. They always say it is better to be born lucky than good looking and that certainly applies to me.

A local investment firm called Tyndalls which also managed unit trusts (albeit not very well) had a life company which was failing. They had another floor in the same building and were desperate to dispose of their lease. Their floor was identical in size though a little bit tatty as it had already been occupied for some time. The availability of two such similar offices at the same time enabled us to stage a Dutch auction. Tyndalls would come back with the offer of a rent-free period and then the landlord would come back with an even better offer. It was clearly in the landlord’s interests to let the space to us because it meant that if we moved in the building would be fully occupied. Although Tyndalls had moved out, they were still paying the rent. I think the landlord had a potential buyer for the building if it had full occupancy. I think he gave us an allowance for partitioning and two years rent free. Stephen couldn’t believe the deal he finally arranged.

As 17 employees would have looked pretty silly in an area the size of a five-a-side football field, I did something which to this day still surprises people. I partitioned off the end quarter of our floor. We just built a partition right across the office. There wasn’t so much as a door. Only Stephen and I even knew that the other part of the office existed. The staff assumed we were operating in 4500 square feet, which was two and a half times bigger than our previous office. No questions were asked. I didn’t want people to spread into 6000 square feet and then find ourselves running out of space again and have to rein them in. This meant that people bought smaller desks and were more careful with the space they occupied. A few years later, when the insurance broking business had grown and we had a telephone help desk for clients and we had formed our own investment department, we were once again straining at the seams. With a great flourish, I got our favourite partitioning firm in to open up the back. There were a few cobwebs, lots of spiders and the windows needed cleaning but after the carpets were vacuumed we suddenly had another 1500 square feet to play with.

Even that soon wasn’t enough. It wasn’t very long after we had opened up the back of our original space that the remainder of our floor became available. This had been occupied by a small life company run by an Indian gentleman. I can’t remember his name but I think in some way he was connected to the Bank of Credit and Commerce, which went spectacularly bust, but I am not sure whether this company went bust or just disappeared. It was from this gentleman in any event that I learned “the art of the deal”. Indians have the reputation of being great businessmen and we have evidence of that with people such as Lakshmi Mittal, who has created one of the world’s most successful businesses in steel, an industry which everyone thought was dead 15 years ago. This guy certainly knew how to do a deal. He taught me a lot. For example, he refused to speak to me directly and insisted that I negotiate with someone I came to call his henchman.

It was a crazy situation because we both knew he wanted to get rid of the office space and we both knew that I wanted it. It became a war of attrition, one which I am not afraid to say that he won. His henchman would always put a deal to me on a Friday. He knew it was one I could never possibly accept but he insisted on leaving me the weekend to think about it. In desperation I tried inventing a fictional piece of space elsewhere in order to try and frighten them that I might move the whole business out. I did everything I had learned to try and regain the advantage, but each time the henchman simply informed me that he would be lynched if he agreed to my deal. It became a war of nerves. Initially I had expected him to assign the lease and maybe make a small payment plus legal costs. In the end I found myself paying the legal costs.

However, although it cost me money, I have no regrets about being bested on this deal, as I have used the henchman idea many times successfully since. The chance to use a business ruse of this kind comes up all the time, more often than you might think. It is particularly helpful in purchasing. No matter what we are looking to buy – whether it is letterheads, envelopes, advertising space or office equipment – I always make sure that someone else in the office starts the negotiations. That only happens after I have been briefed and introduced to the supplier. My job at that first meeting is to breathe fire at the poor unsuspecting salesman. When it comes to agreeing a price later, my employee then begs them to offer a better deal – on the basis that I will kill them if they have to come back to me with the lousy price that they first suggested. This stratagem must have saved us thousands of pounds over the years. I think I learned almost as much from the inscrutable Indian boss as I learnt from the little man in Times Square.

Business was prospering, however, so it was easy to put up with the disruption. 1985 and 1986 turned out to be the golden years of the unit trust industry. Investors clamoured for new funds with exciting names. We focused on growing our list and improving the ways in which we presented the various propositions to our clients. New unit trust groups sprung up. Richard Thornton had parted company with GT, the unit trust group he had started with Tom Griffin, and had formed his own unit trust group. There he recruited Jim Mellon who has since gone on to create his own investment empire and a considerable personal fortune. It was the time of the weird and wonderful and investors couldn’t get enough of it. The riskier and more esoteric the launches, the more the investors piled in. Everything went up and the country had a phenomenal confidence as Margaret Thatcher’s policies came to fruition.

It was the time of the yuppie and the whiz kids. Many of the people who had lost their jobs when economic policies had laid much of our industrial heritage to waste had risen from the ashes and created new businesses rather than the horrible union-ridden government-supported industries that existed before. Those should never have survived. The only reason why they had survived was because the pound had been regularly devalued and the government, in many cases, had poured in aid. Some people look back affectionately at the 1970s. In my view, they were our nation’s years of shame. Britain didn’t just become the sick man of Europe. Britain was the sickest economy in the world. A job needed doing and we have to thank Margaret Thatcher for doing it. By the time she was ousted (outrageously in my opinion), she left Britain with one of the best economies in the world. In the mid-1980s, we were still firmly on the recovery path and the markets definitely got a little too confident and exuberant.

In 1987, the Chancellor of the Exchequer, Nigel Lawson, launched the PEP, the first of the tax-free “wrappers”, with the stated aim of encouraging people to save and invest more. In retrospect, the first PEP was a poor product. It allowed you to invest £2400 (a miserably small sum of money, even then) in a tax-free shelter. Only a quarter of that could be in funds. The rest had to be in quoted shares. I think Nigel Lawson must have seen all the whiz kids in the City in their red braces at the time and thought that was what an investor looked like. It showed that he had no feel for what the general public was like or wanted. The problem was that the man in the street, even if he knew what a share was, had no idea which shares to buy.

It was no surprise therefore that in its early years the PEP was not a success. Once Margaret Thatcher had been re-elected for her third term in 1987, however, the stock market celebrated with such exuberance that there wasn’t a bear in sight. Every journalist, stock market pundit and private investor was convinced that the only direction for the market was upwards, indefinitely. Symptomatic of the time was the exorbitant price that Britannia Unit Trusts paid for the unit trust group owned by the NatWest Bank. In the same category was the extravagant launch of a new range of unit trusts by Royal Insurance, one of Britain’s best-known insurance companies, based in a large iconic building in Liverpool.

“The Royal event”, as it came to be known in the industry, was one of the most lavish unit trust launches of all time. The company desperately wanted to get into the investment market and spared no expense in the effort. It produced the most brilliant marketing I have seen from an insurance company which, on reflection, may not be saying that much. Their best innovation was to make their unit trust application forms look as similar as possible to a prospectus for the privatisation issues that had been so successful in the early 1980s. In every privatisation issue, from British Airways, British Steel and British Telecom to the power and water companies, the City had persuaded the Treasury to spend a fortune on underwriting the offers for sale, despite the fact that the companies were already being sold at a bargain price. It was a gravy train for the City and easy money for those investors who took part. By making the Royal event look as much like a privatisation as possible, the company encouraged investors to pile in with the same expectation of success.

What made the Royal event remarkable in the industry was that almost any Tom, Dick or Harry with any sort of agency arrangement with Royal Insurance could participate. Even if their agency was just for endowment policies to back mortgages, they were allowed to take part in the Royal event. In fact I remember receiving a mailing about the Royal event from a firm of estate agents in Bristol. I telephoned them to ask why they had sent it to me and from where they had got my name. Their answer was that I had enquired about a property that was on their books when I had moved to Bristol in 1979. That made me smile when it came back to me. This firm had been the first to show me round when I had arrived in Bristol. They had showed me a part of Bristol which has the posh and exotic-sounding name of Montpelier though it is anything but posh or exotic. Quite frankly, it was (and still is) a dump. The agent told me that it was “coming up” as an area. After looking at two properties, I was able to tell him that if it was coming up, it certainly wasn't going to happen in my lifetime. The story goes that many estate agents in that part of Bristol were always trying to sell properties, some even owned by themselves, in the area to suckers who are moving to Bristol from out of town. I wasn’t sucked in.

No one knows how much Royal Insurance spent on the Royal event, but everyone remembered how many prospectuses they received. My personal tally was 14. It showed how, if everyone sings from the same hymn sheet and if every single broker in the land sends out particulars of the same investment, it increases the amount of business that eventually gets done. Whatever you think about the wisdom of Royal's policy, it was an example of what blanket marketing can do. They not only produced all the marketing literature for any agent who wanted to take part. They also produced complete mailing packs, together with a suggested accompanying letter. We knew the man at the Royal who was in charge of the broker side of the event. When I contacted him and said that we would like to use our own letter in the Royal event, he was delighted. As we wished to direct our clients to just two of the three funds on offer, we simply sent him the letter that we wanted to see go out under our name.

In practice, Royal Insurance did virtually everything for anyone who agreed to take part. They even paid the postage for the mailings. All we did was send them a small parcel containing labels with all our clients’ name and addresses. We did nothing else. The applications went back to the Royal, rather than to us, and they did all the processing. All the applications were coded and a few weeks later the Royal sent us a cheque. Perhaps we should have done what some other people did, which was buy any old lists – dentists, doctors, chiropodists, opticians, you name it – and send the labels off to the Royal. We were a little more concerned about the ethics of such indiscriminate mailings. We also wanted to give investors some guidance. Of the three funds that were being launched, we thought one was unlikely to perform particularly well. We therefore guided our clients towards the other two, which duly turned out to be a better home for their money.

Before we could be vindicated, the industry had to endure the storm that erupted in the financial markets in October 1987. Many people are surprised when they see me socially in the evening and ask me what the market has done that day. It is normally quite rare that I know. Unless you are a trader, the daily movements of the market should be immaterial. The only time I look closely at what is happening is during periods of extreme volatility. October 1987 was one such occasion. The Wall Street collapse started with the US market falling on Thursday 15th October. In those days I used to go out for a run with a couple of pals. We used to run six or seven miles. We had a circuit that went past each of our houses in turn. We then showered at our respective homes and met down at one of the local hostelries in order to have a couple of beers. When I got to the pub, one of the guys had had time to switch on the television where it was being reported that Wall Street had collapsed. The US market's fall had started in the afternoon, UK time, but was not severe enough to have a big impact on the UK stock market before it closed.

By chance the famous storm which poor old Michael Fish, the TV weatherman, has for some reason taken the blame for started later that night or early the following morning and blew all day on the 16th, prompting the joke that Sevenoaks had now become Fouroaks. London was so disrupted that many people in the City failed to get to work and British news services, being naturally more interested in the storm, failed to report the events on Wall Street where the market again fell more than a hundred points on the Friday the 16th. Such was the devastation of the storm that the troubles on Wall Street remained virtually unreported over the weekend. It was only on Monday when the City of London got back to work that the financial markets were finally able to appraise the situation. The UK stock market fell by 10% and even that wasn’t the end of it. When Wall Street opened on the 19th there was a further sell off and whilst much of the fall was after trading hours in the UK, Wall Street ended up down by a mighty 22%, the biggest one day fall of all time. The UK fell a further 11% on the Tuesday.

My worries about how bad things might get were initially proved wrong. Every pundit that the media could find was trying hard to convince people that there was no need to panic – instead it was a great buying opportunity. To my surprise, the first few weeks after the crash produced brisk business for us, as bargain hunters entered the market. This boost to business was short-lived however. The problem was that between May and the beginning of October 1987 huge numbers of investors who had never bought an equity based investment in their life before had come into the market, attracted by the big gains being made. I had a letter from one new client who had lost huge amounts of money in 1974 when the market had previously crashed. He told me how he had vowed at the time never to invest again but had succumbed to temptation just five weeks before the crash of 1987. I suspect he never ventured back into the markets again.

The ironic thing was that anyone who had invested some money in shares on January 1st 1987 would still have been showing a profit on December 31st. Although the market hadn’t fallen below its level at the beginning of the year, the scale and speed of the October fall shocked investors to the core. The crash also coincided with the privatisation of BP. Because of our position, we had been offered a small amount of underwriting on some earlier privatisations. Underwriting means you are paid a small commission by the seller of the shares, in this case the British Government, on the understanding that if there is insufficient demand for shares in a flotation, you will pick up any shares that fail to be sold at the offer price. In most previous privatisations, underwriting had proved to be an unnecessary luxury and a boon for the investment banks that were bringing the various companies to the market. Whereas they had initially doled out the underwriting to a wide circle of brokers and others, later on they started to restrict this so as to keep more of the proceeds for themselves and their cronies. In this particular privatisation, which involved selling shares in a well-known company that had been quoted on the stock market for many years already, they kept it a very closed shop indeed. The market was soaring when the BP privatisation was announced and we weren’t offered even the tiniest amount of underwriting. It turned out to be a blessing in disguise.

In the event, the timing of the BP float could not have been worse. The prospectus was out and the issue open for subscription when the stock market staged its collapse. Amazingly, some private investors still went ahead and put their money in the new shares at the offer price, even though this was above the price you could have bought the existing shares for in the market. Nothing could be much dumber than that. Despite the fact that a few stupid investors still trotted up with their cheques, the bulk of the issue was left with the underwriters who promptly went cap in hand to the government to plead to be let off their commitments. They got short shrift, thank goodness. The Government pointed out that if they had done the underwriting job properly and not kept the bulk of the issue to themselves, they wouldn’t be in this trouble. Their greed cost them many millions of pounds and it took several years for them to sell out their stock.

After the short-lived euphoria, as investors thought they were buying bargains in the hope that the market would immediately bounce back, our business volumes more or less collapsed. We learned a hard lesson, which is that investment it is not like any other industry. When there is a recession in the car industry, car manufacturers sell seven cars instead of ten. In the case of the investment industry, investors don’t buy anything. They don’t need to do so as they can always leave their money on deposit. In 1987, the government, knowing that almost every stock market crash had heralded a recession, slashed interest rates to try to keep the economy going. In the short term, they were reasonably successful but this did not prevent these being dreadful times for us. Low interest rates caused the rest of the economy to boom. The housing market was soaring and many companies were being bought and sold because of the availability of cheap finance.

In a commercial city such as Bristol, we could not fail to notice that the accountants were doing well, the solicitors were doing well, and our two main industries, aerospace and the life assurance industry, were also doing well. We were competing in the same job market for staff. In 1987, unlike today, sales of life assurance products were not particularly sensitive to falls in the stock market either. Most of the money channelled through life companies still went into so-called with profit funds that were designed to be unaffected by any sudden falls in the market. As the market ended higher at the end of the year than at the beginning, most life companies increased their with profit bonuses the following January.

By contrast, even as the rest of the world was booming, we suddenly found ourselves wrestling with a savage downturn in business that showed no sign of ending any time soon. The problem is that when you are quiet you are always at risk of losing your best staff. The phones didn’t ring and because interest rates had collapsed neither were there any high-yielding investments that we could suggest to our clients. Misguidedly we continued to inform our clients of investment opportunities in unit trusts. Some clients appreciated the fact that we continued to contact them but really we shouldn’t have wasted our money. One thing did stand us in good stead for the future. Several of our clients unfortunately welched on deals that they had placed just before the crash. We were not alone in this. Most brokers in the land faced a similar situation. The difference was that even though we didn’t get paid, we settled the deals and took on the investments ourselves, even though they were worth considerably less by the time we acquired them. I think the fund management groups in the unit trust industry appreciated our action. We believed that honouring the deals was our responsibility. Some brokers claimed otherwise but we were “del credere” agents. (A del credere agent is one who stands the financial risk of a deal not being completed. In other words, if his customers don’t pay, the agent pays). It still irks me that one broker who welched on his deals still trades and on occasions gets quoted in the press.

For the first time in our history, the business shrank. Our financial year end was (and still is) June 30th. In our accounts for the year to June 1988, we were able to show a profit, based on the phenomenal business we had contracted in the first 3.5 months of that year, leading up to the October crash. The following year was a different matter. Investors had disappeared and the only game in town as far as we were concerned was our insurance broking subsidiary. In the year ending June 1989, the insurance broking subsidiary made a quarter of a million pounds profit while the rest of the group recorded a quarter of a million pound loss. This made the three principals in the insurance broking subsidiary difficult and demanding to deal with. A few months before the crash, we had consolidated all the businesses in the Hargreaves Lansdown group. The share exchange left the insurance-broking directors with a small stake of about 2.5% each in the top company. I thought we were badly advised to carry out the consolidation but by then it was too late. It meant we were left with a situation where three people with a very small stake in the business were making all the group profit. We had to acquiesce to some of their demands just to keep the business together but it left a sour taste in the mouth.

It was not as if they were growing the business very fast any longer. Eventually Gary Horswell, the one with the most business acumen, decided to leave. He was philosophical about it. He shook my hand and told me that he had enjoyed the experience but had decided to go out on his own and try to prove himself as a businessman. I remember him saying that he would never forget everything that he had learnt at Hargreaves Lansdown. It wasn’t a total disaster for us. Perhaps the other two directors felt aggrieved that they hadn’t been invited to join the new venture; in any event they seemed to be galvanised by Gary’s departure. A few years later, having proved that he had the courage to set up on his own, he was made an offer he couldn’t refuse by a specialist insurance brokerage. We will never know whether staying with us would have been a more profitable route than the one he took. Having bumped into him again the other day, we shared an enjoyable trip to London together, reminiscing about our venture. He informed me he had once again started up a new business. I was able to wish him well in his latest business venture, which I am sure will be a success.

From the beginning, we had been told that our industry was one of feast and famine. We were finally sampling the famine. Many commentators were convinced that the famine would be short-lived. Compared to 1974, when the country was nearly bankrupt and would probably have defaulted on its debt had we not mortgaged North Sea oil, times were different, they suggested. The economy wasn’t in bad shape. I was dubious about these arguments. I believe in economic and market cycles. I could remember that it had taken six years for investors to venture back to the stock market after 1974. My view was that if we worked on the principle that it might take us as long again to restore business to its boom time levels, we wouldn’t be disappointed. However, the issue remained: as a business that was focused on promoting unit trusts, what should we do? Our main competitor at the time was a company that by chance had set up within a month or so of us in 1981. This was a company called Chase de Vere. It was an excellent business in those days, ably run by Michael Chadwick and Michael Edge. We didn’t come across them a great deal as they initially set up in London. Later, they moved down to Bath, just a dozen or so miles away from us.

Chase de Vere had a successful direct marketing business and had always focused less on equities and more on guaranteed income bonds and fixed interest. That was certainly the right place to be in 1988. I don’t think they suffered as badly as we did during the downturn. The product they excelled in was guaranteed income bonds and in those days they had a significant market share, second only to the clearing banks which were shovelling millions into the product. The market for guaranteed income bonds was tighter than for unit trusts, as most issues had a finite sum and were backed by a specific gilt or other fixed interest instrument. Chase de Vere had a lot of experience in this area and had a great feel for how much they could sell of each issue. The life companies were happy, therefore, to keep them well supplied with tranches of new issues. With our shorter track record, it took us a couple of years to become a credible player in this market. We have always felt that competition was good for our business and seeing their success naturally made us try harder to keep looking for new opportunities.

One event that proved something of a bonanza for us, although to this day we don’t know why it happened, was the Government's decision to end the tax-free income that you could draw from life assurance savings plans. Until then the rules were that, if you funded a life assurance policy for a minimum of ten years, the amount of money held in that policy at the end of that period could be used to generate a tax-free income, no matter what rate of tax you paid. This had never been a big deal for investors, largely because life company funds had to pay income tax and capital gains tax on investments held within the funds, so the tax benefits were marginal. By chance, shortly before the announcement was made, I was talking to an extremely able direct marketing manager at Scottish Widows about promoting one of their regular savings plans. We had got as far as putting together a mailing pack. The product was not particularly exciting but it could have been useful for some clients.

The change in legislation was announced at the beginning of 1988 just a day before I was scheduled to go on holiday. My main concern that day was to clear my desk and make sure that everyone had something to do while I was away. I didn’t, therefore, give the news much thought. The next day, we set off on holiday. Unusually, we took the train to Gatwick rather than drive. On the journey between Bristol and Reading, where we were due to change, I saw a comment in the newspaper about the change in legislation. The fact that I had been thinking of promoting a plan with the ability to take tax-free income on maturity in any event made me think. If we were going to do it before, then we should certainly do it now before the tax privileges were about to be withdrawn. Much to my wife’s dismay, I borrowed a sheet of paper from someone in the train and wrote a few brief notes to Theresa (there were no mobile phones then). I gave her the name of my Scottish Widows contact in Edinburgh and all the reasons why we should have a go. I put this letter in an envelope and posted it when we got to Gatwick. Then I disappeared on holiday and never gave it another thought.

Theresa received my letter the following day and talked to everybody in the office who was involved in life assurance savings plans. She couldn’t get any enthusiasm at all. Perhaps it was just as well that she couldn’t contact me. She took out what I believe is the marketing manager’s most important tool, namely a calculator. She keyed in a few figures to work out how many of these plans we needed to sell in order to recover the cost of mailing 20,000 people. This was something that I would never have done but it looked an achievable target. She rang up my contact in Edinburgh. They did the deal and when I came back I was impressed to discover how bold and brave she had been. The product turned out to be an amazing success, as well as a huge feather in her cap. Whilst our mailing was in production, the loss of tax-free income on life company savings products became a major story. Nobody else was anywhere near ready to get out a mailing, so ours landed in a blaze of helpful news coverage. The success of this venture gave us significant confidence that the lean years need not be devoid of success. Although unit trusts were dead, investors still wanted ideas for their savings.

Something else that lifted the business’s spirits after the Scottish Widows savings plan was an event that we had announced just three days before the stock market crash the previous October. As our staff had worked all hours that God sent handling the phenomenal business of the summer of 1987, we thought we should do something to reward and encourage them. I had come up with the idea of an office trip to Majorca. I had called this trip “The Spanish Connection”. That was partly because when I was at Burroughs Machines they had organised a trip called The Italian Job, after the film of that name. Ours was intended to be a parody of another film, the cult movie The French Connection. When our business fell out of bed, Stephen and I agonised whether to go ahead or not. In the circumstances, I doubt if any member of staff would have felt aggrieved had we cancelled it. In the end, however, we went ahead and never regretted it for one minute. It was money well spent and a great morale-booster. At a management course I had been on years before, I remembered somebody saying that you should put the most effort into lifting staff when they don’t have much to do: when everything is going well, they are too busy getting their jobs done to become down-hearted. “The Spanish Connection” certainly got the firm going again. The years between the 1987 and the early 1990s were the years when we learned how durable our business was.

The years that followed forced us into learning more about the full range of what people who came to be known as independent financial advisers (IFAs) did. We had a few people who could offer personal advice but they had come into it through necessity, not by choice. Whilst many of our clients were very happy to make their own investment decisions from the literature we supplied, we were being asked more and more frequently to supply individual advice. We did it but I don’t think our hearts were in it. At least we took comfort in the fact that we had an ethical team of people. They could afford to be ethical because it was the client who was asking for advice in our case. We weren’t the salesman with his foot in the door, offering advice whether the client wanted it or not, as happened (and still happens) elsewhere.

One of the problems with investment advice as a business is that there is a lot of abortive work. Most IFAs spend a large amount of their time producing reports and information for potential clients, only to find that the client either opts to go elsewhere or decides not to proceed. It has often been said that people who act on advice end up having to pay for the time that the financial adviser has spent with the people who don’t do anything. The advantage of an operation such as ours is that we don’t actively promote our advice business. Instead we prefer to wait for clients to come to us and ask for advice. That way we have far less abortive work and it means that our advisers, whom we call Financial Practitioners, not Financial Advisers, don't have to spend a large part of their time prospecting for new business. We can therefore afford to work with lower margins and provide what we genuinely believe is the best advice, rather than having to spend time hunting down the products with the highest commissions. The only other way to make advice work as a business is to achieve sufficient scale that you can spread the costs of prospecting for new business and abortive research across a much broader client base. Some firms have gone down that route but it is not the way we have chosen to do it. As a result, we have been able to avoid much of the stigma that (rightly or wrongly) sticks to anyone who takes commission yet dares to call themselves an Independent Financial Adviser.

One thing we learned quickly was that in bear markets investors never shun the market completely (a bear market is one where most people believe the market will go down rather than up). The one thing you are always certain about after a stock market crash is that you are not buying shares at the top of the market! In the back of most investors’ minds, therefore, a niggling voice is suggesting that if only markets were to return to their previous levels, there would be a big rise in the value of their capital. One way that investors try to put themselves back in the game is to place a small amount of money in something very speculative. Often they will want to buy emerging markets or geared investments. We frequently offered these types of products in conjunction with some low risk “banker” alongside them. We might, for example, buy a guaranteed growth bond and a geared share in an investment trust, combine the two and offer it as a product which would give the investor their money back at worst but also offer a lot of upside if markets improved. The result is a no-lose situation with some upside, and because markets did in fact climb from the lows set after the October 1987 crash, investors did very well from small geared plays of this kind.

One smart thing we did in the lean times was to start computerising what we were doing. Although our efforts would look crude by today’s standards, we made the effort to record on our computers all the different investments that our clients had bought. Many readers may be surprised to hear that most brokers in the 1980s had no records at all of what their clients had put their money into. As long as our clients retained their funds, having records gave us a crucial advantage; it meant we were in a position to value their portfolios. In turn that meant we could show a comparison between how well they had done and the performance of our in-house managed portfolios. The disparity in returns helped to attract reasonable volumes of business for us. Instinctively many people prefer to let someone else make decisions for them, and having the evidence that our portfolios were in many cases producing better results helped to convince them to change. Many years later, during the market downturn of 2002-03, we were able to draw on our experience in the lean years of the 1980s to even greater advantage. Whereas in the first period, we had maybe one or two people dealing with individual enquiries on a case by case basis, now we have a much more sophisticated process whereby clients can ask us to carry out a comprehensive review of their holdings, something we call a portfolio healthcheck. The lesson we took from the tough times in the 1980s was that having detailed information on clients’ holdings, when coupled with a fully manned help desk and a regular programme of mailouts, makes for a very powerful business model.

We also launched a regular investing scheme, on the basis that regular investment has historically been one of the best ways to invest. If you have £100,000 to invest, putting all that money into the market in one go will prove to be either very wrong or very right, depending on whether the market's level turns out to be high or low (something you don't normally find out about until later). We therefore formulated a product which allowed the client to allocate a certain amount of money to the markets and inform us over what period they would like us to drip it into the market. We called it a phased investment plan. We were flattered ten years later when many other firms produced a similar product after the technology debacle and even gave it the same name. Our phased investment plan was a new departure in another way as well, based on our discovery that people like receiving small gifts through the post. I had come across a man who had bought large numbers of the share certificates of “busted bonds”, as they were called. These were share certificates of companies which at one time or another had gone bust. Some dated back to the 19th century. Many more dated back to the period shortly after the Wall Street crash.

Share certificates in those days were very ornate and colourful and when framed made excellent pictures to hang on the walls of an office. Accordingly, we arranged that anyone who bought a phased investment plan from us was sent one of these beautiful and ornately engraved share certificates. Some of them even have value as collectors’ items. I remember that when Fidelity launched its famous Special Situations unit trust in 1980, the manager Anthony Bolton received significant publicity because one of the investments he had made was in what were known as “Boxer Bonds”. These were bonds issued by the Chinese before the days of Chairman Mao. During the subsequent communist regime, the Chinese had (to nobody's great surprise) defaulted. The idea had come from Fidelity’s head office in Boston, where they had heard that President Reagan intended to visit China. The idea emerged that the détente between America and China might result in the Chinese making some token payment towards these bonds in case they ever needed to raise capital in the international capital markets. The Boxer Bonds were never redeemed, as far as I am aware, but Anthony Bolton made a tidy profit on them when other people forced up the price in the wake of the improvement in relations between China and the United States.

There was one ugly consequence of the British government's decision to slash interest rates in the wake of the stock market crash. Inflation, which everyone thought had been conquered, suddenly started to rise again. The Government had no option but to raise interest rates which meant that for a while we saw products in the market place which delivered once again the magical income return of 10%. As will be explained later, the two things that are normally true about products with double digit yields are (1) that they are irresistible to investors and (2) that they sometimes fall into the too-good-to-be-true category that the little man in Times Square had taught me all about. On this occasion, for a brief period at least, we were able to launch a genuinely innovative product that delivered real value to the income-hungry investor.

What we did was buy a small portfolio of income unit trusts which at the time (believe it or not) yielded in the region of 7% or 8% per annum. Then we would buy what is known as a temporary five year annuity which delivered a very high rate of income in a tax-efficient manner. This was because the greater part of the “income” was deemed to be a return of capital and so did not attract income tax. Because interest rates were high, annuities were cheap. The only risk the client faced was that the income fund could not earn back the cost of the annuity through capital appreciation. Over a five year time horizon, the investors were in practice taking very little risk. The result was that these plans allowed clients to enjoy an income of 11% while producing a capital sum after five years that was significantly greater than the amount they had originally invested.

Our business soldiered on with the help of short-term fixes such as these. We had however lost the excitement, enthusiasm and buzz that there used to be about the business. So low did things get that we even looked at a merger with a company that had what we lacked, which was a highly incentivised sales force. We got as far as agreeing a price for the deal, only for it to be aborted during the due diligence phase when the accountants (quite incorrectly, as it happened) suggested that we would make a significant loss, not the modest profit that we had been forecasting. By then, fortunately, it was probably immaterial. After meeting the two major shareholders of the company with which we were going to merge, Stephen and I had a lift back to Bristol with the chief executive. This turned out to be a lucky break. As we questioned him about his business, it soon became clear that it wasn't doing particularly well either. We walked away from the deal before it even reached the stage of negotiating the lower price that the chief executive said he wanted. With hindsight, doing that deal would have been a very serious mistake.

Slowly, we started putting the business together again. Necessity proved to be the mother of invention. There were many things that we managed to achieve during those lean years. We were for instance the first brokerage to negotiate a 10% discount on BUPA medical insurance for our clients. We also revisited “roll up” funds which, although their capital gains tax advantages had been legislated against, were still excellent vehicles for deferring tax. A roll up fund is typically based in the Channel Islands and turns income into guaranteed capital gains. The funds were categorised as no longer having distributor status, but they were (and still are today) useful for deferring tax. That is because any annual gains you make are accumulated gross of any tax, and the gains on the gains are also accumulated gross. In effect therefore you have more of your capital working for you for longer. Many investors use them whilst they are working and are paying tax at 40%, knowing that they can sell them when they retire, at which time they will often have reverted to paying basic rate tax. Wealthier investors who plan to live abroad when they retire also use them by waiting until they can be declared “not ordinarily resident for tax purposes”. At that point they can sell the roll-up funds and pay no tax at all.

One thing we came to realise during this period was quite how much money investors were putting into so-called single premium investment bonds. These are products which allow investors to make a single one-off payment which is then invested in one or more of the provider's funds, using the investment bond as a wrapper. They have always been popular with many advisers, since they pay 6% or 7% in initial commission rather than the 3% available on unit trusts. Needless to say, when the markets fell, these bonds too went down in value, just as unit trusts did. Many of our clients were keen for us to appraise their investment bonds for them. Our response was we didn't generally recommend investment bonds because in our view the life companies which offered them often knowingly and willingly allowed investors and their advisers to abuse them. Good deals were rare. Many brokers who sold these bonds to their clients would also offer the clients a bond-switching service. The idea was that the client would give the broker the power to switch the money that had been invested in the bond from one of the life company’s investment funds to another. In other words, the money might be taken out of, say, the life company's Japanese fund and invested in its US fund instead, while remaining within the overall investment bond wrapper.

Some of the big life companies offered the most crazy terms to brokers for switches that they carried out on clients' behalf. Not surprisingly this inevitably led to cases of abuse. In some cases the life companies would allow a broker to backdate any switches they made for clients by as much as two days. In other words if, as a broker, you saw that the American market had gone up, you could switch cash into the life company's American fund and still capture the gain two days after the event! I could never understand why the life companies allowed this practice. If you allow new money coming into a fund to benefit from a gain that has already happened, it effectively penalises all the investors who were previously in the fund. It was hardly surprising in the circumstances that many bond funds, and especially those where bond switching was actively being pursued, performed badly. The practice has now thankfully died out. One reason was that the brokers who were playing the switching game had for the first time to obtain qualifications to manage clients’ money, something that was sadly beyond the grasp of many of them in those days.

Taking stock of our move into new lines of business, we could see that the pension business that we had first set up with Hilary Carden was starting to produce profits for the group. We had an unhappy foray, however, into providing school fee plans. We quickly discovered that they didn’t fit our approach to business. We recruited someone who had worked for a leading school fee advice firm. I don’t think he can have listened during his interview when we said that we would only want to get involved in school fee planning if we could do so in an ethical way, by which we meant putting the interests of the client first. In the case of most school fee plans in those days, the prime beneficiary was the broker who sold them. In many cases the plans were based on endowments that offered very high commission rates – a nice little earner for the broker but not always such good news for the client. Most of these policies were cashed in long before maturity, not that this worried the brokers unduly. Even when policies were cashed in early, the brokers were still allowed to keep the commission as if the policy had been held for its whole life, which could be as much as 20 years. Sad to relate, for many investors, leaving the money in the building society would have cost them nothing and produced a better result. Unfortunately, the person whom we recruited could not adapt to our way of doing business and our parting with him was accompanied by much acrimony.

The one thing that we did keep going through all those lean years was our newsletter. In fact, I still have a full set, which has been invaluable in carrying out the research for this book. We found out that clients appreciated it enormously if we stayed in contact with them even when they weren’t willing to invest. By keeping in contact during the lean times, we have invariably found that we increase our market share. Doing so has only a minimal effect on our bottom line, as the cost of staying in contact is small in relative terms. We always put a cover price on the newsletter even when it was free, as we thought it made the clients value it more. The two most useful things we learned by staying in contact with clients were (a) what type of investments they wanted and (b) when they were ready to start reinvesting. We did, however, take to sending out our literature in the same envelope as contract notes in order to save on postage, which has always been one of our biggest costs.

For a while, we experimented with charging a subscription for the newsletter and had a modicum of success. The offering with which we had most success however was something we called the Savers Organisation, a package of different items which guaranteed clients all our newsletters, all our bulletins and a number of other services including significant discounts on package holidays. At its peak, I think we had as many as 10,000 paying members. One of the very popular perks of belonging to the Savers Organisation was the massive discounts on package holidays through a company named Magic Breaks. Keith Thompson, who ran this service for us, did so well that eventually he made it his main business and extended it into other areas. It was one of a number of businesses in which we took a stake and offered to help along the way. Having participated in some of the capital growth that Keith's business achieved, it was later sold just before the package holiday market collapsed.